~~Table of Contents~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, ~~2019~~2020



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to

Commission File Number 001-35780

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

(Exact name of registrant as specified in its charter)



~~Delaware~~	~~001-35780~~	~~80-0188269~~
~~(State or other jurisdiction~~ ~~of incorporation)~~	~~(Commission~~ ~~File Number)~~	~~(I.R.S. Employer~~ ~~Identification Number)~~

Delaware

80-0188269

(State or other jurisdiction
of incorporation)

(I.R.S. Employer
Identification Number)

200 Talcott Avenue

Watertown,

Massachusetts

02472

~~(Address~~ (Address of principal executive offices)

(Zip code)

Registrant’s telephone number, including area code: (617)673-8000

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value per share

BFAM

New York Stock Exchange

Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large ~~Accelerated Filer~~accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in ~~rule~~Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October ~~25, 2019, the Company had 58,181,832~~30, 2020, there were 60,564,312 shares of common stock outstanding.

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BRIGHT HORIZONS FAMILY SOLUTIONS INC.

FORM 10-Q

For the quarterly period ended September 30, ~~2019~~2020

TABLE OF CONTENTS

Table of Contents

PART I. FINANCIAL ~~INFORMATION~~INFORMATION.t

Item 1. Condensed Consolidated Financial Statements (Unaudited)t

BRIGHT HORIZONS FAMILY SOLUTIONS INC.

BRIGHT HORIZONS FAMILY SOLUTIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
September 30, 2019 December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents $ 48,529
$ 15,450
Accounts receivable — net 117,573
131,178
Prepaid expenses and other current assets 62,027
47,263
Total current assets 228,129
193,891
Fixed assets — net 601,168
597,141
Goodwill 1,371,905
1,347,611
Other intangibles — net 305,918
323,035
Operating lease right-of-use assets 658,134
—
Other assets 45,972
62,628
Total assets $ 3,211,226
$ 2,524,306
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt $ 10,750
$ 10,750
Borrowings under revolving credit facility —
118,200
Accounts payable and accrued expenses 180,577
154,195
Current portion of operating lease liabilities 80,905
—
Deferred revenue 175,163
170,416
Other current liabilities 22,596
30,224
Total current liabilities 469,991
483,785
Long-term debt — net 1,030,254
1,036,870
Operating lease liabilities 643,089
71,817
Other long-term liabilities 94,308
75,368
Deferred revenue 5,258
5,683
Deferred income taxes 73,831
71,306
Total liabilities 2,316,731
1,744,829
Stockholders’ equity:
Preferred stock, $0.001 par value; 25,000,000 shares authorized and no shares issued or outstanding at September 30, 2019 and December 31, 2018 —
—
Common stock, $0.001 par value; 475,000,000 shares authorized; 57,917,567 and 57,494,468 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively 58
57
Additional paid-in capital 663,227
648,651
Accumulated other comprehensive loss (94,537 ) (62,355 )
Retained earnings 325,747
193,124
Total stockholders’ equity 894,495
779,477
Total liabilities and stockholders’ equity $ 3,211,226
$ 2,524,306
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)


	September 30, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	365,300	$	27,872
Accounts receivable — net of allowance for credit losses of $3,827 and $1,226 at September 30, 2020 and December 31, 2019, respectively	150,099		148,855
Prepaid expenses and other current assets	85,983		51,865
Prepaid income taxes	14,115		296
Total current assets	615,497		228,888
Fixed assets — net	606,831		636,153
Goodwill	1,409,040		1,412,873
Other intangible assets — net	281,226		304,673
Operating lease right-of-use assets	717,951		700,956
Other assets	42,976		46,877
Total assets	$	3,673,521	$	3,330,420
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	10,750	$	10,750

Accounts payable and accrued expenses	178,516		167,059
Current portion of operating lease liabilities	94,431		83,123
Deferred revenue	177,302		191,117
Other current liabilities	43,828		31,241
Total current liabilities	504,827		483,290
Long-term debt — net	1,022,489		1,028,049
Operating lease liabilities	727,716		685,910
Other long-term liabilities	114,778		92,865
Deferred revenue	10,351		10,098
Deferred income taxes	66,247		58,940
Total liabilities	2,446,408		2,359,152
Stockholders’ equity:
Preferred stock, $0.001 par value; 25,000,000 shares authorized and 0 shares issued or outstanding at September 30, 2020 and December 31, 2019	0		0
Common stock, $0.001 par value; 475,000,000 shares authorized; 60,263,169 and 57,884,020 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively	60		58
Additional paid-in capital	895,966		648,031
Accumulated other comprehensive loss	(66,860)		(50,331)
Retained earnings	397,947		373,510
Total stockholders’ equity	1,227,113		971,268
Total liabilities and stockholders’ equity	$	3,673,521	$	3,330,420

See accompanying notes to condensed consolidated financial statements.

BRIGHT HORIZONS FAMILY SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
(Unaudited)

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
Revenue $ 511,584
$ 471,585
$ 1,541,402
$ 1,424,941
Cost of services 386,364
358,545
1,149,614
1,072,320
Gross profit 125,220
113,040
391,788
352,621
Selling, general and administrative expenses 53,964
49,427
166,330
152,776
Amortization of intangible assets 8,627
8,153
25,086
24,477
Income from operations 62,629
55,460
200,372
175,368
Interest expense — net (10,955 ) (11,795 ) (34,626 ) (35,459 )
Income before income tax 51,674
43,665
165,746
139,909
Income tax expense (10,420 ) (10,065 ) (33,123 ) (28,585 )
Net income $ 41,254
$ 33,600
$ 132,623
$ 111,324

Earnings per common share:
Common stock — basic $ 0.71
$ 0.58
$ 2.28
$ 1.91
Common stock — diluted $ 0.69
$ 0.57
$ 2.24
$ 1.88

Weighted average number of common shares outstanding:
Common stock — basic 57,935,118
57,719,730
57,820,596
57,841,382
Common stock — diluted 59,132,689
58,924,423
58,941,612
59,044,561

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BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(In thousands, except share data)

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Revenue	$	337,920	$	511,584	$	1,138,015	$	1,541,402
Cost of services	282,749		386,364		908,749		1,149,614
Gross profit	55,171		125,220		229,266		391,788
Selling, general and administrative expenses	53,301		53,964		159,917		166,330
Amortization of intangible assets	7,797		8,627		23,881		25,086

Income (loss) from operations	(5,927)		62,629		45,468		200,372
Interest expense — net	(9,186)		(10,955)		(28,521)		(34,626)
Income (loss) before income tax	(15,113)		51,674		16,947		165,746
Income tax benefit (expense)	8,459		(10,420)		7,490		(33,123)
Net income (loss)	$	(6,654)	$	41,254	$	24,437	$	132,623

Earnings (loss) per common share:
Common stock — basic	$	(0.11)	$	0.71	$	0.41	$	2.28
Common stock — diluted	$	(0.11)	$	0.69	$	0.41	$	2.24

Weighted average common shares outstanding:
Common stock — basic	60,196,795		57,935,118		59,253,044		57,820,596
Common stock — diluted	60,196,795		59,132,689		60,001,730		58,941,612

See accompanying notes to condensed consolidated financial statements.

BRIGHT HORIZONS FAMILY SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
Net income $ 41,254
$ 33,600
$ 132,623
$ 111,324
Other comprehensive loss:
Foreign currency translation adjustments (20,157 ) (9,914 ) (23,975 ) (23,602 )
Unrealized gain (loss) on interest rate swaps and investments, net of tax (1,037 ) 935
(8,207 ) 7,923
Total other comprehensive loss (21,194 ) (8,979 ) (32,182 ) (15,679 )
Comprehensive income $ 20,060
$ 24,621
$ 100,441
$ 95,645

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BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Net income (loss)	$	(6,654)	$	41,254	$	24,437	$	132,623
Other comprehensive income (loss):
Foreign currency translation adjustments	24,632		(20,157)		(13,319)		(23,975)
Unrealized gain (loss) on cash flow hedges and investments, net of tax	267		(1,037)		(3,210)		(8,207)
Total other comprehensive income (loss)	24,899		(21,194)		(16,529)		(32,182)
Comprehensive income	$	18,245	$	20,060	$	7,908	$	100,441

See accompanying notes to condensed consolidated financial statements.

BRIGHT HORIZONS FAMILY SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)

Three months ended September 30, 2019
Common Stock
Additional
Paid-in
Capital
Treasury Stock, at Cost
Accumulated
Other
Comprehensive
Income (Loss)
Retained Earnings
Total
Stockholders’
Equity
Shares Amount
Balance at July 1, 2019 57,898,902
$ 58
$ 667,154
$ —
$ (73,343 ) $ 284,493
$ 878,362
Stock-based compensation expense 4,721
4,721
Issuance of common stock under the Equity Incentive Plan 100,462
—
4,128
4,128
Shares received in net share settlement of stock option exercises and vesting of restricted stock (6,296 ) —
(991 ) (991 )
Purchase of treasury stock (11,785 ) (11,785 )
Retirement of treasury stock (75,501 ) —
(11,785 ) 11,785
—
Other comprehensive loss (21,194 ) (21,194 )
Net income 41,254
41,254
Balance at September 30, 2019 57,917,567
$ 58
$ 663,227

$ —
$ (94,537 ) $ 325,747
$ 894,495

Table of Contents

Three months ended September 30, 2018
Common Stock
Additional
Paid-in
Capital
Treasury Stock, at Cost
Accumulated
Other
Comprehensive
Income (Loss)
Retained Earnings
Total
Stockholders’
Equity
Shares Amount
Balance at July 1, 2018 57,660,575
$ 58
$ 676,093
$ —
$ (39,996 ) $ 112,867
$ 749,022
Stock-based compensation expense 3,715
3,715
Issuance of common stock under the Equity Incentive Plan 119,517
—
3,233
3,233
Shares received in net share settlement of stock option exercises and vesting of restricted stock (3,410 ) —
(378 ) (378 )
Other comprehensive loss (8,979 ) (8,979 )
Net income 33,600
33,600
Balance at September 30, 2018 57,776,682
$ 58
$ 682,663
$ —
$ (48,975 ) $ 146,467
$ 780,213
BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(In thousands, except share data)

(Unaudited)


	Three months ended September 30, 2020
	Common Stock			Additional Paid-in Capital		Treasury Stock, at Cost		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
Balance at July 1, 2020	60,152,187	$	60	$	885,373	$	0	$	(91,759)	$	404,601	$	1,198,275

Stock-based compensation expense				5,700								5,700
Issuance of common stock under the Equity Incentive Plan	119,778	—		6,074								6,074
Shares received in net share settlement of stock option exercises and vesting of restricted stock	(8,796)	—		(1,181)								(1,181)


Other comprehensive income								24,899				24,899
Net loss										(6,654)		(6,654)
Balance at September 30, 2020	60,263,169	$	60	$	895,966	$	0	$	(66,860)	$	397,947	$	1,227,113


	Three months ended September 30, 2019
	Common Stock			Additional Paid-in Capital		Treasury Stock, at Cost		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
Balance at July 1, 2019	57,898,902	$	58	$	667,154	$	0	$	(73,343)	$	284,493	$	878,362
Stock-based compensation expense				4,721								4,721
Issuance of common stock under the Equity Incentive Plan	100,462	—		4,128								4,128
Shares received in net share settlement of stock option exercises and vesting of restricted stock	(6,296)	—		(991)								(991)
Purchase of treasury stock						(11,785)						(11,785)
Retirement of treasury stock	(75,501)	—		(11,785)		11,785						0
Other comprehensive loss								(21,194)				(21,194)
Net income										41,254		41,254
Balance at September 30, 2019	57,917,567	$	58	$	663,227	$	0	$	(94,537)	$	325,747	$	894,495

See accompanying notes to condensed consolidated financial statements.

BRIGHT HORIZONS FAMILY SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)

Nine months ended September 30, 2019
Common Stock
Additional
Paid-in
Capital
Treasury Stock, at Cost
Accumulated
Other
Comprehensive
Income (Loss)
Retained Earnings
Total
Stockholders’
Equity
Shares Amount
Balance at January 1, 2019 57,494,468
$ 57
$ 648,651
$ —
$ (62,355 ) $ 193,124
$ 779,477
Stock-based compensation expense 12,339
12,339
Issuance of common stock under the Equity Incentive Plan 554,758
1
21,183
21,184
Shares received in net share settlement of stock option exercises and vesting of restricted stock (51,658 ) —
(6,531 ) (6,531 )
Purchase of treasury stock (12,415 ) (12,415 )
Retirement of treasury stock (80,001 ) —
(12,415 ) 12,415
—
Other comprehensive loss (32,182 ) (32,182 )
Net income 132,623
132,623
Balance at September 30, 2019 57,917,567
$ 58
$ 663,227
$ —
$ (94,537 ) $ 325,747
$ 894,495

Table of Contents

Nine months ended September 30, 2018
Common Stock
Additional
Paid-in
Capital
Treasury Stock, at Cost
Accumulated
Other
Comprehensive
Income (Loss)
Retained Earnings
Total
Stockholders’
Equity
Shares Amount
Balance at January 1, 2018 58,013,144
$ 58
$ 747,155
$ —
$ (33,296 ) $ 35,143
$ 749,060
Stock-based compensation expense 10,304
10,304
Issuance of common stock under the Equity Incentive Plan 680,344
1
18,380
18,381
Shares received in net share settlement of stock option exercises and vesting of restricted stock (76,954 ) —
(7,452 ) (7,452 )
Purchase of treasury stock (85,725 ) (85,725 )
Retirement of treasury stock (839,852 ) (1 ) (85,724 ) 85,725
—
Other comprehensive loss (15,679 ) (15,679 )
Net income 111,324
111,324
Balance at September 30, 2018 57,776,682
$ 58
$ 682,663
$ —
$ (48,975 ) $ 146,467
$ 780,213
BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(In thousands, except share data)

(Unaudited)


	Nine months ended September 30, 2020
	Common Stock			Additional Paid-in Capital		Treasury Stock, at Cost		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
Balance at January 1, 2020	57,884,020	$	58	$	648,031	$	0	$	(50,331)	$	373,510	$	971,268
Issuance of common stock	2,138,580	2		249,788								249,790
Stock-based compensation expense				15,138								15,138
Issuance of common stock under the Equity Incentive Plan	535,930	1		24,112								24,113
Shares received in net share settlement of stock option exercises and vesting of restricted stock	(64,048)	—		(8,896)								(8,896)
Purchase of treasury stock						(32,208)						(32,208)
Retirement of treasury stock	(231,313)	(1)		(32,207)		32,208						0
Other comprehensive loss								(16,529)				(16,529)
Net income										24,437		24,437
Balance at September 30, 2020	60,263,169	$	60	$	895,966	$	0	$	(66,860)	$	397,947	$	1,227,113


	Nine months ended September 30, 2019
	Common Stock			Additional Paid-in Capital		Treasury Stock, at Cost		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
Balance at January 1, 2019	57,494,468	$	57	$	648,651	$	0	$	(62,355)	$	193,124	$	779,477
Stock-based compensation expense				12,339								12,339
Issuance of common stock under the Equity Incentive Plan	554,758	1		21,183								21,184
Shares received in net share settlement of stock option exercises and vesting of restricted stock	(51,658)	—		(6,531)								(6,531)
Purchase of treasury stock						(12,415)						(12,415)
Retirement of treasury stock	(80,001)	0		(12,415)		12,415						0
Other comprehensive loss								(32,182)				(32,182)
Net income										132,623		132,623
Balance at September 30, 2019	57,917,567	$	58	$	663,227	$	0	$	(94,537)	$	325,747	$	894,495

See accompanying notes to condensed consolidated financial statements.

BRIGHT HORIZONS FAMILY SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

Nine months ended September 30,
2019 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 132,623
$ 111,324
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 80,427
75,146
Stock-based compensation expense 12,339
10,304
Deferred income taxes 4,085
(3,719 )
Other non-cash adjustments — net 66
3,286
Changes in assets and liabilities:
Accounts receivable 14,789
11,672
Prepaid expenses and other current assets (11,343 ) 6,261
Accounts payable and accrued expenses 22,695
25,151
Deferred revenue 4,046
(1,282 )
Leases 9,565
2,592
Other assets (344 ) (4,808 )
Other current and long-term liabilities 3,482
3,769
Net cash provided by operating activities 272,430
239,696
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (74,492 ) (62,861 )
Proceeds from the disposal of fixed assets 4,331
312
Purchases of debt securities and other investments (20,090 ) —
Purchase of equity method investment (5,772 ) —
Payments and settlements for acquisitions — net of cash acquired (30,841 ) (51,744 )
Net cash used in investing activities (126,864 ) (114,293 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility 172,874
493,100
Payments under revolving credit facility (290,732 ) (526,200 )
Principal payments of long-term debt (8,063 ) (8,063 )
Payments for debt issuance costs —
(292 )
Purchase of treasury stock (12,023 ) (85,725 )
Taxes paid related to the net share settlement of stock options and restricted stock (6,531 ) (7,452 )
Proceeds from issuance of common stock upon exercise of options 17,607
14,893
Proceeds from issuance of restricted stock 3,899
4,457
Payments of deferred and contingent consideration for acquisitions (4,200 ) (2,965 )
Net cash used in financing activities (127,169 ) (118,247 )
Effect of exchange rates on cash, cash equivalents and restricted cash 34
(271 )
Net increase in cash, cash equivalents and restricted cash 18,431
6,885
Cash, cash equivalents and restricted cash — beginning of period 38,478
36,570
Cash, cash equivalents and restricted cash — end of period $ 56,909
$ 43,455

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BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine months ended September 30,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	24,437	$	132,623
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	83,173		80,427
Impairment losses on long-lived assets	18,609		0
Impairment losses on equity investment	2,128		0
Stock-based compensation expense	15,138		12,339
Deferred income taxes	8,408		4,085
Other non-cash adjustments — net	(206)		66
Changes in assets and liabilities:
Accounts receivable	(1,385)		14,789
Prepaid expenses and other current assets	(28,599)		(810)
Accounts payable and accrued expenses	11,921		23,824
Income taxes	(18,830)		(11,662)
Deferred revenue	(14,956)		4,046
Leases	30,434		9,565
Other assets	4,192		(344)
Other current and long-term liabilities	35,389		3,482
Net cash provided by operating activities	169,853		272,430

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets	(54,494)		(74,492)
Proceeds from the disposal of fixed assets	9,997		4,331
Proceeds from the maturity of debt securities and sale of other investments	10,247		0
Purchases of debt securities and other investments	(6,106)		(20,090)
Purchase of equity method investment	0		(5,772)

Payments and settlements for acquisitions — net of cash acquired	(8,101)		(30,841)
Net cash used in investing activities	(48,457)		(126,864)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock issuance — net of issuance costs	249,808		0
Borrowings under revolving credit facility	43,200		172,874
Payments under revolving credit facility	(43,200)		(290,732)
Principal payments of long-term debt	(8,063)		(8,063)
Payments for debt issuance costs	(2,818)		0
Purchase of treasury stock	(32,658)		(12,023)
Taxes paid related to the net share settlement of stock options and restricted stock	(8,896)		(6,531)
Proceeds from issuance of common stock upon exercise of options and restricted stock upon purchase	27,087		21,506

Payments of deferred and contingent consideration for acquisitions	(1,088)		(4,200)
Net cash provided by (used in) financing activities	223,372		(127,169)
Effect of exchange rates on cash, cash equivalents and restricted cash	286		34
Net increase in cash, cash equivalents and restricted cash	345,054		18,431
Cash, cash equivalents and restricted cash — beginning of period	31,192		38,478
Cash, cash equivalents and restricted cash — end of period	$	376,246	$	56,909

See accompanying notes to condensed consolidated financial statements.

BRIGHT HORIZONS FAMILY SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
(Unaudited)

Nine months ended September 30,
2019 2018
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents $ 48,529
$ 21,304
Restricted cash and cash equivalents, included in prepaid expenses and other current assets 8,380
7,770
Restricted cash and cash equivalents, included in other assets —
14,381
Total cash, cash equivalents and restricted cash — end of period
$ 56,909
$ 43,455

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments of interest $ 33,053
$ 34,197
Cash payments of income taxes $ 40,691
$ 28,939
NON-CASH TRANSACTIONS:
Fixed asset purchases recorded in accounts payable and accrued expenses $ 5,519
$ 5,100
Contingent consideration issued in business combinations $ 16,621
$ —

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BRIGHT HORIZONS FAMILY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

(Unaudited)


	Nine months ended September 30,
	2020		2019
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents	$	365,300	$	48,529
Restricted cash and cash equivalents, included in prepaid expenses and other current assets	10,946		8,380

Total cash, cash equivalents and restricted cash — end of period	$	376,246	$	56,909

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments of interest	$	26,741	$	33,053
Cash payments of income taxes	$	8,329	$	40,691
Cash paid for amounts included in the measurement of lease liabilities	$	83,874	$	94,775
NON-CASH TRANSACTIONS:
Fixed asset purchases recorded in accounts payable and accrued expenses	$	3,377	$	5,519
Contingent consideration issued for acquisitions	$	0	$	16,621

Operating right-of-use assets obtained in exchange for operating lease liabilities — net	$	88,850	$	83,772

See accompanying notes to condensed consolidated financial statements.

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BRIGHT HORIZONS FAMILY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization — Bright Horizons Family Solutions Inc. (“Bright Horizons” or the “Company”) provides center-based child care and early education, back-up child and adult/elder care, tuition ~~reimbursement~~assistance and student loan repayment program ~~management,~~administration, educational advisory services, and other support services for employers and families in the United States, the United Kingdom, the Netherlands, Puerto Rico and India. During the three months ended September 30, 2020, the Company divested its child care center business in Canada and ~~India.~~ceased to operate its 2 centers in that geography. The Company provides services designed to help families, employers ~~families~~ and ~~adult learners~~their employees better ~~address the challenges of~~integrate work and family life, primarily under multi-year contracts with employers who offer child care, ~~and other~~ dependent care, ~~solutions, as well as educational advisory~~and workforce education services, as part of their employee benefits packages in an effort to support employees across life and career stages and improve employee engagement.

Basis of Presentation — The accompanying unaudited condensed consolidated balance sheet as of September 30, ~~2019~~2020 and the condensed consolidated statements of income (loss), comprehensive income (loss), changes in stockholders’ equity, and cash flows for the interim periods ended September 30, ~~2019~~2020 and ~~2018~~2019 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP” or “GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange ~~Commission.~~Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required in accordance with U.S. GAAP for complete financial statements and should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. Certain reclassifications have been made to prior period amounts within the condensed consolidated balance sheet and the operating section of the condensed consolidated statement of cash flows to conform to the current period presentation.

In the opinion of the Company’s management, the Company’s unaudited condensed consolidated balance sheet as of September 30, ~~2019~~2020 and the condensed consolidated statements of income (loss), comprehensive income (loss), changes in stockholders’ equity, and cash flows for the interim periods ended September 30, ~~2019~~2020 and ~~2018,~~2019, reflect all adjustments (consisting only of normal and recurring adjustments) necessary to present fairly the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year.

Stockholders’ Equity — The board of directors of the Company authorized a share repurchase program of up to $300 million of the Company’s outstanding common stock effective June 12, 2018. The share repurchase program has no expiration date. The shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions, under Rule 10b5-1 plans, or by other means in accordance with federal securities laws. At September 30, ~~2019, $246.6~~2020, $194.9 million remained available under the repurchase program. The Company has temporarily suspended share repurchases due to the impact of COVID-19 as the Company prioritizes investments to the most critical operating areas.

On April 21, 2020, the Company completed the issuance and sale of 2,138,580 shares of common stock, par value $0.001 per share, to Durable Capital Master Fund LP at a price of $116.90 per share. The Company subsequently filed a registration statement to register the resale of these shares in accordance with the terms of the purchase agreement. The Company received net proceeds from the offering of $249.8 million.

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COVID-19 Pandemic — In March 2020, the Company began to experience the impact of the COVID-19 pandemic on its global operations, as required business and school closures and shelter-in-place government mandates resulted in the temporary closure of a significant portion of the Company’s child care centers. The Company continued to operate critical health care client and "hub" centers to provide care and support services to the children whose parents work on the front lines of the response to the pandemic. Countries and local jurisdictions have since lifted certain restrictions, and the Company has re-opened a significant portion of the temporarily closed centers. As of September 30, 2020, the Company operated 1,026 child care and early education centers with the capacity to serve approximately 115,000 children and their families. As of September 30, 2020, approximately 900 of its child care centers (with a total capacity of approximately 100,000) were open, including approximately 540 centers in the United States, approximately 300 centers in the United Kingdom, and 62 centers in the Netherlands. The Company's centers are operating with specific COVID-19 protocols in place in order to protect the health and safety of children, families and staff, including social distancing procedures for pick-up and drop-off, daily health checks, the use of face masks by the Company’s staff, limited group sizes, and enhanced hygiene and cleaning practices. The Company is focused on the re-enrollment and ramping of open centers, while also continuing to phase the remaining center re-openings through the remainder of 2020 and into 2021, as conditions permit. As the Company continues to analyze the current environment, it may decide to close or not re-open certain centers in locations where demand and economic trends have shifted. During the three months ended September 30, 2020, the Company added 5 new centers and permanently closed 55 centers, for a total of 58 net center reductions in 2020. The Company’s back-up care and educational advisory services have remained fully operational to clients and their employees. Due to the acute need for child care support during this pandemic, the Company expanded back-up care services and the availability of self-sourced reimbursed care in the second quarter; during the three months ended September 30, 2020, the temporary use of self-sourced reimbursed care significantly decreased as demand for back-up care started to shift toward more traditional in-center and in-home delivery of back-up care solutions.

As a result of the economic effects of the COVID-19 pandemic, the Company considered whether these conditions indicated it was more likely than not that the Company’s $1.4 billion in goodwill and $180.9 million in indefinite-lived intangible assets were impaired. Based on the facts and circumstances as of September 30, 2020, the Company determined it was more likely than not that the fair value of its reporting units and indefinite-lived intangible assets exceeded their carrying amount and, therefore, an interim impairment analysis was not required.

In addition, the Company reviewed its long-lived assets, including operating lease right-of-use assets and amortizable intangible assets, to determine whether these conditions indicated that the carrying amount of such assets may not be recoverable. During the three and nine months ended September 30, 2020, the Company recognized a $1.7 million and $18.6 million impairment loss on long-lived assets, respectively, for certain centers that are unlikely to recover the carrying amount of their long-lived assets due to the operational disruption caused by the pandemic, including certain locations that the Company has decided to not re-open or expects not to continue operating on a long-term basis. Given the current risks and uncertainties associated with the COVID-19 pandemic and its impact on the Company's operations, additional impairment losses may occur.

The broad effects of COVID-19, its duration and scope of the ongoing disruption, including the pace of re-ramping of enrollment at centers that have re-opened, cannot be predicted and is affected by many interdependent variables and decisions by government authorities as well as the Company’s client partners, and by any continued developments in the persistence and treatment of COVID-19. The Company cannot anticipate how long it will take for re-opened centers to reach typical enrollment levels and there is no assurance that centers currently open will continue to operate. While the Company has experienced increased demand for back-up care services during the pandemic, such as in-home care and self-sourced reimbursed care, and more limited disruption to providing educational advisory services, these conditions and trends may not continue in subsequent periods. As businesses and families continue to adapt to changing conditions, the Company has seen a shift in back-up care services toward the more traditional in-center and in-home service delivery as use gradually re-ramps to pre-COVID-19 levels, while the temporary use of self-sourced reimbursed care decreased during the third quarter. Given these factors, the Company expects the effects of COVID-19 to continue to adversely impact the results of its operations for the remainder of 2020 and into 2021.

During the temporary closure of a significant portion of the Company's child care centers, the Company implemented measures to mitigate the impact on the Company's financial position and operations, as well as improve liquidity and access to financial resources. Although the Company experienced modest improvement to revenue during the three months ended September 30, 2020 compared to the second quarter of 2020, the Company continues to monitor the ongoing disruption and to deploy measures, as needed, to mitigate the impact on the Company's financial position and operations. These measures include:

•furloughing a significant portion of the Company’s employees in proportion to the number of center closures, including center personnel for temporarily closed centers and related support functions in the Company’s corporate offices;

•reducing discretionary spending and overhead costs, while prioritizing investments that support current operations and deferring to future periods nonessential investments;

•temporary voluntary reductions in compensation to certain executive officers and board members;

•participating in government assistance programs, including tax deferrals, tax credits and employee wage support;

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•renegotiating payment terms with vendors and landlords;

•temporary suspension of share repurchases;

•amending the Company’s credit agreement in April 2020 and May 2020 to increase the borrowing capacity of the Company’s revolving credit facility from $225 million to $400 million; and,

•raising $249.8 million in net proceeds from the issuance and sale of common stock in April 2020.

In light of these actions and based on the Company’s assumptions about the continued impact of COVID-19 on its operations, the Company believes it has sufficient liquidity to satisfy its obligations for at least the next twelve months. Refer to Note 6, Credit Arrangements and Debt Obligations, for additional information on the amendments to the Company’s credit agreement.

Government Assistance — The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States, which is an economic aid package to help mitigate the impact of the pandemic. Additionally, other foreign governmental legislation that provides relief provisions has been enacted in response to the economic impact of COVID-19. The Company has participated in certain government assistance programs, including availing itself of certain tax deferrals and tax credits allowed pursuant to the CARES Act in the United States, as well as certain tax deferrals, tax credits, and employee wage support in the United Kingdom, and may continue to do so in the future. Governmental assistance received is recorded on the consolidated statement of income as a reduction to the related expenses that the assistance is intended to defray. During the three and nine months ended September 30, 2020, $20.3 million and $61.5 million was recorded as a reduction to cost of services, respectively, in relation to these benefits. As of September 30, 2020, $16.0 million was recorded in prepaid expenses and other current assets on the consolidated balance sheet for amounts due from government assistance programs. Additionally, approximately $3.0 million and $12.4 million was recorded in accounts payable and accrued expenses and other long-term liabilities, respectively, related to payroll tax deferrals.

Recently Adopted Pronouncements — On January 1, ~~2019,~~2020, the Company adopted Accounting Standards Update (“ASU”) ~~2016-02,~~ ~~Leases~~ (“ASC 842”), which requires lease assets and lease liabilities to be recognized on the balance sheet for the rights and obligations created by lease arrangements. The Company adopted the new lease guidance using the modified retrospective approach and the transition method available in accordance with ASU 2018-11, ~~Leases (Topic 842): Targeted Improvements~~, which provides the option to use the effective date as the date of initial application of the guidance. As a result, the comparative information for prior periods has not been adjusted and continues to be reported in accordance with the accounting standards in effect for those periods under the previously applicable guidance.

~~The Company evaluated its identified leases and applied the new lease guidance as further discussed in Note 3,~~ ~~Leases~~. The Company elected the package of practical expedients available under the transition guidance within ASC 842, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification, and initial direct costs.

The adoption of ASC 842 as of January 1, 2019 resulted in the recognition of lease liabilities of $705.7 million, which consisted of current operating lease liabilities of $81.1 million and long-term operating lease liabilities of $624.6 million, and operating lease right-of-use assets (“ROUA” or “lease assets”) of $644.3 million. Upon adoption of ASC 842, lease obligations associated with deferred rent and lease incentives recorded under previous guidance were reclassified from other current liabilities and operating lease liabilities to the lease assets. The new lease guidance did not impact the consolidated statement of income or cash flows, or earnings per common share.

~~In August 2017, the FASB issued ASU 2017-12,~~ ~~Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (Topic 815)~~, which expands and refines hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The guidance also makes certain targeted improvements to simplify the application of hedge accounting guidance and ease the administrative burden of hedge documentation requirements and assessing hedge effectiveness. The Company adopted the new guidance on January 1, 2019. The new guidance with respect to cash flow and net investment hedge relationships existing on the date of adoption is applied on a modified retrospective basis, and the new presentation and disclosure requirements are applied on a prospective basis. There was no impact to the Company’s consolidated financial statements and related disclosures from the adoption of this guidance.

~~Recently Issued Pronouncements~~ ~~— In June 2016, the FASB issued ASU~~ 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,which amends the existing guidance on the accounting for credit losses of certain financial instruments. This guidance requires entities to recognize the expected credit loss over the lifetime of certain financial instruments and modifies the impairment model for available-for-sale debt securities. This ~~ASU is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, with early adoption permitted. This~~ standard is applied by recording a cumulative effect adjustment to retained earnings upon adoption. There was no impact to the Company’s consolidated financial statements upon the adoption of this guidance.

The Company generates accounts receivable from fees charged to parents and employer sponsors, which are generally billed monthly as services are rendered or in advance, and are classified as short-term. The Company monitors collections and maintains a provision for expected credit losses based on historical trends, current conditions, and relevant forecasted information, in addition to provisions established for specific collection issues that have been identified. Activity in the allowance for credit losses is as follows (in thousands):


	Nine months ended September 30, 2020
Beginning balance at January 1, 2020	$	1,226
Provision	3,625
Write-offs and recoveries	(1,024)
Ending balance at September 30, 2020	$	3,827

The Company’s investments in debt securities, which were classified as available-for-sale, are further disclosed in Note 9, Fair Value Measurements. As of September 30, 2020, the available-for-sale debt securities are not in an unrealized loss position, and therefore there is no allowance for credit losses.

Recently Issued Pronouncements — In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The standard removes certain exceptions to the general principles in Topic 740 and improves the consistent application of U.S. GAAP by clarifying and amending certain areas of the existing guidance. This ASU is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, with early adoption permitted. The Company is in the process of evaluating the impact of adoption of this standard, isbut does not ~~expected to~~expect it will have a material impact on the ~~Company's~~Company’s consolidated financial statements and related disclosures.

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2. REVENUE RECOGNITION

The Company’s services are primarily comprised of full service center-based child care, back-up care, and educational advisory services. The Company's back-up care offerings include in-center care, in-home care and self-sourced reimbursed care, a reimbursement program for clients to utilize in emergency-type situations. Revenue growth in the back-up care segment for the nine months ended September 30, 2020 was primarily attributable to the increased utilization for self-sourced reimbursed care as a result of the acute need for child care during the temporary closure of schools and child care centers. Revenue for self-sourced care is comprised of variable transaction fees paid by employer sponsors and is recognized on a net basis over time as services are provided.

Disaggregation of Revenue

The Company disaggregates revenue from contracts with customers into segments and geographical regions. Revenue disaggregated by segment and geographical region was as follows (in thousands):


	Full service center-based child care		Back-up care		Educational advisory and other services		Total
Three months ended September 30, 2020
North America	$	137,112	$	89,271	$	24,734	$	251,117
Europe	83,024		3,779		0		86,803
	$	220,136	$	93,050	$	24,734	$	337,920
Three months ended September 30, 2019
North America	$	298,770	$	75,245	$	20,736	$	394,751
Europe	112,019		4,814		0		116,833
	$	410,789	$	80,059	$	20,736	$	511,584

Full service
center-based child care Back-up care Educational
advisory services Total
Three months ended September 30, 2019
North America $ 298,770
$ 75,245
$ 20,736
$ 394,751
Europe 112,019
4,814
—
116,833
$ 410,789
$ 80,059
$ 20,736
$ 511,584
Three months ended September 30, 2018
North America $ 279,324
$ 64,860
$ 18,053
$ 362,237
Europe 107,724
1,624
—
109,348
$ 387,048
$ 66,484
$ 18,053
$ 471,585

Full service
center-based child care Back-up care Educational
advisory services Total
Nine months ended September 30, 2019
North America $ 920,113
$ 203,155
$ 58,911
$ 1,182,179
Europe 347,576
11,647
—
359,223
$ 1,267,689
$ 214,802
$ 58,911
$ 1,541,402
Nine months ended September 30, 2018
North America $ 858,035
$ 175,671
$ 51,162
$ 1,084,868
Europe 335,759
4,314
—
340,073
$ 1,193,794
$ 179,985
$ 51,162
$ 1,424,941


	Full service center-based child care		Back-up care		Educational advisory and other services		Total
Nine months ended September 30, 2020
North America	$	527,751	$	292,934	$	66,061	$	886,746
Europe	241,082		10,187		0		251,269
	$	768,833	$	303,121	$	66,061	$	1,138,015
Nine months ended September 30, 2019
North America	$	920,113	$	203,155	$	58,911	$	1,182,179
Europe	347,576		11,647		0		359,223
	$	1,267,689	$	214,802	$	58,911	$	1,541,402

The classification “North America” is comprised of the Company’s United States, Canada, and Puerto Rico operations and the classification “Europe” includes the United Kingdom, Netherlands, and India operations. During the three months ended September 30, 2020, the Company divested its child care center business and ceased to operate its 2 centers in Canada.

Deferred Revenue

The Company records deferred revenue when payments are received in advance of the Company’s performance under the contract, which ~~are~~is recognized as revenue as the performance obligation is satisfied. During the nine months ended September 30, 2020, $170.0 million was recognized as revenue related to the deferred revenue balance recorded at December 31, 2019. During the nine months ended September 30, 2019, $155.1 million was recognized as revenue related to the deferred revenue balance recorded at December 31, 2018. ~~During the nine months ended September 30, 2018, $143.6 million was recognized as revenue related to the deferred revenue balance recorded at December 31, 2017.~~

Remaining Performance Obligations

The transaction price allocated to the remaining performance obligations relates to services that are paid or invoiced in advance. The Company does not disclose the value of unsatisfied performance obligations for contracts with an original contract term of one year or less, or for variable consideration allocated to the unsatisfied performance obligation of a series of services. The Company’s remaining performance obligations not subject to the practical expedients ~~are~~were not material.

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3. LEASES

~~On January 1, 2019, the Company adopted ASC 842,~~ ~~Leases~~, which requires lease assets and lease liabilities to be recognized on the balance sheet for the rights and obligations created by lease arrangements. The Company adopted the new guidance using the modified retrospective transition method. Results for periods beginning on January 1, 2019, the effective date, are presented under the updated guidance, while comparative information for prior periods has not been adjusted and continues to be reported in accordance with the previous guidance under ASC 840, ~~Leases~~.

The Company has operating leases for certain of its full service and back-up child care and early education centers, corporate offices, call centers, and to a lesser extent, various office equipment, in the United States, the United Kingdom, and the ~~Netherlands, and Canada.~~Netherlands. Most of the leases expire within 10 ~~years~~ to 15 years and many contain renewal options and/or termination provisions. The Company does not have any finance leases as of September 30, ~~2019.~~

At contract inception, the Company reviews the terms to determine if an arrangement is a lease, and whether those lease obligations are operating or finance leases. At lease commencement, lease assets and lease liabilities are recognized on the consolidated balance sheet based on the present value of the unpaid lease payments, calculated using the Company’s incremental borrowing rate. Lease commencement occurs on the date the Company takes possession or control of the property or equipment. Leases may contain fixed and variable payment arrangements. Variable lease payments may be based on an index or rate, such as consumer price indices, and include rent escalations or market adjustment provisions. Lease payments used to measure lease liabilities include fixed lease payments as well as variable payments that depend on an index or rate based on the applicable index or rate at the lease commencement date. Lease assets are initially measured as the amount of the initial lease liability, adjusted for initial direct costs, lease payments made at or before the commencement date, and reduced by lease incentives received, such as tenant improvement allowances. The Company does not include options to renew or terminate the lease in the determination of lease assets and lease liabilities until it is reasonably certain that the option will be exercised based on management's assessment of various relevant factors including economic, entity-specific, and market-based factors, among others. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease payments, including those related to changes in the commencement date index or rate, are expensed as incurred. Lease expense is recognized to cost of services and selling, general and administrative expenses in the consolidated statement of income.

The Company’s leases generally do not provide an implicit interest rate. Therefore, the Company uses an estimate of its incremental borrowing rate, based on the lease terms and economic environment at commencement date, in determining the present value of future payments.

The Company has real estate leases that contain lease and non-lease components and has elected to account for lease and non-lease components in a contract as a single lease component. The non-lease components typically consist of common-area maintenance and utility costs. Fixed payments for non-lease components are considered part of the single lease component and included in the determination of the lease assets and lease liabilities, and variable payments are expensed as incurred. Additionally, lease contracts typically include other costs that do not transfer a separate good or service, such as reimbursement for real estate taxes and insurance, which are expensed as incurred as variable lease costs.

For leases with a term of one year or less (“short-term leases”), the Company elected to not recognize the arrangements on the balance sheet and the lease payments are recognized in the consolidated statement of income on a straight-line basis over the lease term. The Company subleases certain properties that are not used in its operations. Sublease income was not significant for any of the periods presented. The Company’s lease agreements do not contain material restrictive covenants.2020.

Lease Expense

The components of lease expense were as follows (in thousands):


						Three months ended September 30,				Nine months ended September 30,
	Three months ended September 30, 2019		Nine months ended September 30, 2019			2020		2019		2020		2019
Operating lease expense ⁽¹⁾	$	34,166	$	95,555	Operating lease expense (1)	$	33,436	$	34,166	$	105,964	$	95,555
Variable lease expense ⁽¹⁾	8,752		25,738		Variable lease expense (1)	6,419		8,752		21,772		25,738
Total lease expense	$	42,918	$	121,293	Total lease expense	$	39,855	$	42,918	$	127,736	$	121,293

(1) Excludes short-term lease expense and sublease income, which were immaterial for the periods presented.

Operating lease expense for the three and nine months ended September 30, 2020 includes an impairment loss on operating lease right-of-use assets of $0.3 million and $5.5 million, respectively. Refer to Note 9, Fair Value Measurements, for additional information.

Other Information

~~Supplemental cash flow information related to leases was as follows (in thousands):~~

Nine months ended September 30, 2019
Operating Cash Flows:
Cash paid for amounts included in the measurement of lease liabilities $ 94,775
Non-cash Transactions:
Operating right-of-use assets obtained in exchange for operating lease liabilities — net $ 83,772

The weighted average remaining lease term and the weighted average discount rate ~~as of September 30, 2019~~ were as follows:



	~~Operating Leases~~
~~Weighted average remaining lease term (in years)~~	11
~~Weighted average discount rate~~	~~6.4%~~


	September 30, 2020	December 31, 2019
Weighted average remaining lease term (in years)	10	10
Weighted average discount rate	6.0%	6.2%

Maturity of Lease Liabilities

The following table summarizes the maturity of lease liabilities as of September 30, ~~2019~~2020 (in thousands):

Operating Leases
Remainder of 2019 $ 22,288
2020 123,309
2021 112,001
2022 106,257
2023 97,811
Thereafter 541,596
Total lease payments 1,003,262
Less imputed interest (279,268 )
Present value of lease liabilities 723,994
Less current portion of operating lease liabilities (80,905 )
Long-term operating lease liabilities $ 643,089


	Operating Leases
Remainder of 2020	$	30,169
2021	134,729
2022	126,719
2023	118,311
2024	107,564
Thereafter	593,098
Total lease payments	1,110,590
Less imputed interest	(288,443)
Present value of lease liabilities	822,147
Less current portion of operating lease liabilities	(94,431)
Long-term operating lease liabilities	$	727,716

As of September 30, ~~2019,~~2020, the Company had entered into additional operating leases that have not yet commenced with total fixed payment obligations of ~~$119.7 million, inclusive of a new corporate office lease.~~$38.7 million. The leases are expected to commence between the fourth quarter of fiscal ~~2019~~2020 and the fourth quarter of fiscal 2021 ~~with the new corporate office lease expected to commence in the first quarter of 2020,~~ and have initial lease terms of ~~generally~~approximately 10 ~~years~~ to 15 years.

~~Prior Period Disclosures~~

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Lease Modifications

In response to the broad effects of COVID-19, the Company re-negotiated certain payment terms with lessors to mitigate the impact on the Company’s financial position and operations. As of ~~December 31, 2018, future~~September 30, 2020, the Company had deferred lease payments ~~under operating leases were~~of $12.1 million. The majority of these lease payments are payable over the next year. On April 10, 2020, the FASB issued guidance for lease concessions provided to lessees in response to the effects of COVID-19. Such guidance allows lessees to make an election not to evaluate whether a lease concession provided by a lessor should be accounted for as ~~follows as determined in accordance with the previous guidance under ASC 840 and as previously disclosed~~a lease modification, in the ~~Company’s Annual Report on Form 10-K (in thousands):~~event the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee. Such concessions would be recorded as negative lease expense in the period of relief. The Company elected this practical expedient in accounting for lease concessions provided for our center lease agreements and the impact was immaterial.

Operating Leases
2019 $ 120,352
2020 114,628
2021 101,710
2022 95,529
2023 87,530
Thereafter 476,861
Total future minimum lease payments $ 996,610

~~Rent expense for the three and nine months ended September 30, 2018 was $32.1 million and $94.8 million, respectively, as determined under ASC 840.~~

4. ACQUISITIONS

The Company’s growth strategy includes expansion through strategic and synergistic acquisitions. The goodwill resulting from these acquisitions arises largely from synergies expected from combining the operations of the businesses acquired with our existing operations, as well as from benefits derived from gaining the related assembled workforce.

~~2019~~2020 Acquisitions ~~and Investments~~

During the nine months ended September 30, ~~2019,~~2020, the Company acquired 2 centers and the Sittercity business, an online marketplace for families and caregivers, in the United States, ~~4 centers~~ in ~~the Netherlands, and 1 back-up care provider in the United Kingdom, in 6~~3 separate business acquisitions, which were each accounted for as business combinations. These businesses were acquired for cash consideration of ~~$30.7~~$8.1 million, net of cash acquired of ~~$0.9~~$1.3 million, and consideration payable of $0.1 million, and include a trade name of $0.7 ~~million. Additionally, contingent consideration of up to $20.0~~ million may be payable over the next four years if certain future performance targets are met. The Company recorded a preliminary fair value estimate of the contingent consideration of $16.6 million, as disclosed in Note 9, ~~Fair Value Measurements~~. The Company recorded goodwill of $28.1 million related to the back-up care segment, which will not be deductible for tax purposes, and $12.6 million related to the full service center-based child care segment, of which $3.9 million will be deductible for tax purposes. In addition, the Company recorded intangible assets of $9.3 million, primarily consisting of client relationships that will be amortized over five years, as well as fixed assets and technology of ~~$1.9~~$4.1 million. The Company recorded goodwill of $2.1 million related to the educational advisory and ~~deferred~~other services segment and $2.1 million related to the full service center-based child care segment, all of which will be deductible for tax ~~liabilities of $1.8 million in relation to these acquisitions.~~purposes.

The allocation of purchase price consideration is based on preliminary estimates of fair value; such estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). As of September 30, ~~2019,~~2020, the purchase price allocations for these acquisitions remain open as the Company gathers additional information regarding the assets acquired and the liabilities ~~assumed, and finalizes its determination of the estimated fair value of the contingent consideration at the date of acquisition.~~assumed. The operating results for the acquired businesses are included in the consolidated results of operations from the date of acquisition, ~~which~~and were not material to the Company’s financial results.

During the nine months ended September 30, ~~2019,~~2020, the Company paid ~~$4.2~~$1.1 million for deferred and contingent consideration, which were accrued at acquisition. Of this settlement, $3.5 million was for deferred consideration payable related to an acquisition completed in 2018, and $0.7 million was the final installment for contingent consideration related to an acquisition completed in ~~2016.~~2018, which had been recorded as a liability at the date of acquisition.

~~In the nine months ended September 30,~~ 2019 the Company invested $5.8 million for a 20% interest in a provider of full service center-based child care and back-up care services in Germany, which is accounted for using the equity method. The equity method investment is included in other assets on the condensed consolidated balance sheet and, as of September 30, 2019, the investment balance was $5.8 million. The equity in earnings (losses) of the investee through September 30, 2019 were immaterial.

~~Subsequent to September 30, 2019, the Company acquired the tuition program management services division of another organization for $20.1 million in the United States.~~

~~2018~~ Acquisitions

During the year ended December 31, ~~2018,~~2019, the Company acquired 103 centers and the tuition program management division of another company in the United States, 4 centers in the Netherlands, ~~6 centers in the United States,~~ and ~~20 centers~~1 back-up care provider in the United Kingdom, in 78 separate business acquisitions, which were each accounted for as business combinations. ~~The centers~~These businesses were acquired for cash consideration of ~~$66.8~~$53.3 million, net of cash acquired of ~~$4.2~~$1.2 million, and consideration payable of ~~$5.4~~$0.7 million. Additionally, contingent consideration of up to $20.0 million may be payable over the next three years if certain future performance targets are met. The Company recorded a fair value estimate of the contingent consideration of $13.9 million. The Company recorded goodwill of ~~$60.3~~$25.4 million related to the back-up care segment, which will not be deductible for tax purposes, $14.0 million related to the educational advisory and other services segment, which will be deductible for tax purposes, and $15.2 million related to the full service center-based child care segment, of which ~~$13.9~~$3.9 million will be deductible for tax purposes. In addition, the Company recorded intangible assets of ~~$8.6~~$14.6 million primarily consisting of ~~trademarks and~~ customer relationships that will be amortized over ~~two years to~~ five years, as well as fixed assets and technology of ~~$8.3 million, working capital of $1.1~~$3.1 million, and deferred tax liabilities of $1.9 million in relation to these acquisitions.

The allocation of purchase price consideration is based on preliminary estimates of fair value; such estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). As of September 30, ~~2019,~~2020, the purchase price allocations for 2 of the ~~2018~~2019 acquisitions remain open as the Company gathers additional information regarding the assets acquired and the liabilities assumed. ~~The operating results for the acquired businesses are included in the consolidated results of operations from the date of acquisition, which were not material to the Company’s financial results.~~

During the year ended December 31, ~~2018,~~2019, the Company paid ~~$3.1~~$4.2 million for deferred and contingent consideration, which were accrued at the date of acquisition. Of this settlement, $3.5 million was deferred consideration payable related to an acquisition completed in 2018, and $0.7 million was the final installment of ~~a portion of the~~ contingent consideration related to an acquisition completed in ~~2016,~~2016.

Table of ~~which $3.0 million was accrued contingent consideration at acquisition with the remaining balance recorded to the income statement.~~Contents

5. GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying amount of goodwill were as follows (in thousands):

Full service
center-based
child care
Back-up care
Educational
advisory services
Total
Balance at January 1, 2018 $ 1,114,886
$ 168,105
$ 23,801
$ 1,306,792
Additions from acquisitions 60,266
—
—
60,266
Effect of foreign currency translation (19,447 ) —
—
(19,447 )
Balance at December 31, 2018 1,155,705
168,105
23,801
1,347,611
Additions from acquisitions 12,611
28,100
—
40,711
Effect of foreign currency translation (14,701 ) (1,716 ) —
(16,417 )
Balance at September 30, 2019 $ 1,153,615
$ 194,489
$ 23,801
$ 1,371,905


	Full service center-based child care		Back-up care		Educational advisory and other services		Total
Balance at January 1, 2019	$	1,155,705	$	168,105	$	23,801	$	1,347,611
Additions from acquisitions	15,228		25,350		14,000		54,578
Adjustments to prior year acquisitions	(83)		0		0		(83)
Effect of foreign currency translation	10,380		387		0		10,767
Balance at December 31, 2019	1,181,230		193,842		37,801		1,412,873
Additions from acquisitions	2,117		0		2,074		4,191
Adjustments to prior year acquisitions	(383)		0		(125)		(508)
Effect of foreign currency translation	(6,742)		(774)		0		(7,516)
Balance at September 30, 2020	$	1,176,222	$	193,068	$	39,750	$	1,409,040

The Company also has intangible assets, which consisted of the following at September 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


September 30, 2020	Weighted average amortization period	Cost		Accumulated amortization		Net carrying amount
Definite-lived intangible assets:
Customer relationships	14 years	$	404,132	$	(305,757)	$	98,375
Trade names	6 years	11,133		(9,163)		1,970
		415,265		(314,920)		100,345
Indefinite-lived intangible assets:
Trade names	N/A	180,881		—		180,881
		$	596,146	$	(314,920)	$	281,226

September 30, 2019
Weighted average
amortization period
Cost
Accumulated
amortization

Net carrying
amount
Definite-lived intangibles:
Customer relationships 14 years $ 398,331
$ (276,023 ) $ 122,308
Trade names 6 years 9,994
(6,950 ) 3,044
408,325
(282,973 ) 125,352
Indefinite-lived intangibles:
Trade names N/A 180,566
—
180,566
$ 588,891
$ (282,973 ) $ 305,918

December 31, 2018
Weighted average
amortization period
Cost
Accumulated
amortization

Net carrying
amount
Definite-lived intangibles:
Customer relationships 15 years $ 391,220
$ (253,588 ) $ 137,632
Trade names 7 years 10,183
(5,609 ) 4,574
401,403
(259,197 ) 142,206
Indefinite-lived intangibles:
Trade names N/A 180,829
—
180,829
$ 582,232
$ (259,197 ) $ 323,035


December 31, 2019	Weighted average amortization period	Cost		Accumulated amortization		Net carrying amount
Definite-lived intangible assets:
Customer relationships	14 years	$	404,667	$	(283,597)	$	121,070
Trade names	6 years	10,656		(8,144)		2,512
		415,323		(291,741)		123,582
Indefinite-lived intangible assets:
Trade names	N/A	181,091		—		181,091
		$	596,414	$	(291,741)	$	304,673

The Company estimates that it will record amortization expense related to intangible assets existing as of September 30, ~~2019~~2020 as follows (in thousands):


	Estimated amortization expense
Remainder of 2020	$	7,778
2021	$	28,416
2022	$	26,045
2023	$	25,144
2024	$	11,206

Intangible asset amortization
Remainder of 2019 $ 8,033
2020 $ 29,919
2021 $ 26,890
2022 $ 24,626
2023 $ 23,790

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6. CREDIT ARRANGEMENTS AND DEBT OBLIGATIONS

Senior Secured Credit Facilities

The Company’s ~~$1.3 billion~~ senior secured credit facilities consist of a ~~$1.1 billion~~ secured term loan facility (“term loan facility”) and a ~~$225 million~~ multi-currency revolving credit facility (“revolving credit facility”). The term loans mature on November 7, 2023 and require quarterly principal payments of $2.7 million, with the remaining principal balance due on November 7, 2023.

Outstanding term loan borrowings were as follows (in thousands):

September 30, 2019 December 31, 2018
Term loans $ 1,048,125
$ 1,056,188
Deferred financing costs and original issue discount (7,121 ) (8,568 )
Total debt 1,041,004
1,047,620
Less current maturities 10,750
10,750
Long-term debt $ 1,030,254
$ 1,036,870


	September 30, 2020		December 31, 2019
Term loans	$	1,037,375	$	1,045,438
Deferred financing costs and original issue discount	(4,136)		(6,639)
Total debt	1,033,239		1,038,799
Less current maturities	(10,750)		(10,750)
Long-term debt	$	1,022,489	$	1,028,049

On April 24, 2020, the Company amended its existing senior credit facilities to, among other things, increase the borrowing capacity of the revolving credit facility from $225 million to $385 million, modify the interest rates applicable to borrowings outstanding on the revolving credit facility, and modify the terms of the applicable covenants. On May 7, 2020, the Company further increased the borrowing capacity of its revolving credit facility from $385 million to $400 million. The revolving credit facility matures on July 31, ~~2022~~.2022. There were 0 borrowings outstanding on the revolving credit facility at September 30, ~~2019. Borrowings outstanding on the revolving credit facility were $118.2 million at~~2020 and December 31, ~~2018.~~2019.

All borrowings under the credit agreement are subject to variable interest. On May 31, 2018, the Company amended its existing senior credit facilities to, among other changes, reduce the applicable interest rates of the term loan facility and the revolving credit facility. Effective as of May 31, 2018, borrowingsBorrowings under the term loan facility bear interest at a rate per annum of 0.75% over the base rate, or 1.75% over the eurocurrency rate, which is the one, two, three, or six month LIBOR rate or, with applicable lender approval, the twelve month or less than ~~one month~~one-month LIBOR rate. With respect to the term loan facility, the base rate is subject to an interest rate floor of 1.75% and the eurocurrency rate is subject to an interest rate floor of 0.75%. ~~Borrowings~~Effective as of April 24, 2020, borrowings under the revolving credit facility bear interest at a rate per annum ranging from 0.50% to 1.25% over the base rate, or 1.50% to 2.25% over the eurocurrency rate and the unused commitment fee applicable to the revolving credit commitments ranges from 30 to 50 basis points. Prior to the April 2020 credit amendment, borrowings under the revolving credit facility bore interest at a rate per annum ranging from 0.50% to 0.75% over the base rate, or 1.50% to 1.75% over the eurocurrency rate.

The effective interest rate for the term loans was ~~3.79%~~2.50% and ~~4.27%~~3.55% at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, and the weighted average interest rate was ~~4.16%~~2.83% and ~~3.76%~~4.16% for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, prior to the effects of any interest rate ~~swap~~hedge arrangements. ~~The effective interest rate for the revolving credit facility was 4.76% at December 31, 2018.~~ The weighted average interest rate for the revolving credit facility was ~~3.86%~~4.49% and ~~3.97%~~3.86% for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

Certain financing fees and original issue discount costs are capitalized and are being amortized over the terms of the related debt instruments and amortization expense is included in interest expense. In conjunction with the April and May 2020 credit amendments, the Company incurred $2.8 million in fees that have been capitalized in other assets on the consolidated balance sheet and will be amortized over the remaining life of the revolving credit facility. Amortization expense of deferred ~~financing costs were~~fees was $0.7 million and $0.4 million for ~~both~~ the three months ended September 30, 2020 and 2019, respectively, and ~~2018, and were $1.2~~was $1.7 million and ~~$1.1~~$1.2 million for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Amortization expense of original issue discount costs ~~were~~was $0.1 million for both the three months ended September 30, 2020 and 2019, and ~~2018 and were~~was $0.3 million for both the nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019.

All obligations under the senior secured credit facilities are secured by substantially all the assets of the Company’s U.S. subsidiaries. The senior secured credit facilities contain a number of covenants that, among other things and subject to certain exceptions, may restrict the ability of Bright Horizons Family Solutions LLC, ~~our~~the Company’s wholly-owned subsidiary, and its restricted subsidiaries, to: incur certain liens; make investments, loans, advances and acquisitions; incur additional indebtedness or guarantees; pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; engage in transactions with affiliates; sell assets, including capital stock of our subsidiaries; alter the business conducted; enter into agreements restricting ~~our~~the Company’s subsidiaries’ ability to pay dividends; and consolidate or merge.

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In addition, the credit agreement governing the senior secured credit facilities requires Bright Horizons Capital Corp., ~~our~~the Company’s direct subsidiary, to be a passive holding company, subject to certain exceptions. ~~The~~Effective as of April 24, 2020, the revolving credit facility requires Bright Horizons Family Solutions LLC, the borrower, and its restricted subsidiaries, to comply with a maximum ~~consolidated~~first lien gross leverage ratio for four fiscal quarters, followed by a maximum first lien net leverage ratio ~~that is a quarterly maintenance based financial covenant.~~in the quarters thereafter. The maximum first lien gross leverage ratio was 6.00 to 1.00 for the fiscal quarter ending June 30, 2020, 7.50 to 1.00 for the fiscal quarter ending September 30, 2020, 8.00 to 1.00 for the fiscal quarter ending December 31, 2020, and 7.50 to 1.00 for the fiscal quarter ending March 31, 2021. Beginning with the fiscal quarter ending June 30, 2021, the Company will be required to comply with its previous maximum first lien net leverage ratio of 4.25 to 1.00. A breach of ~~this~~the applicable covenant is subject to certain equity cure rights. Prior to the April 2020 credit amendment, the Company was required to comply with a maximum first lien net leverage ratio.

~~The future~~Future principal payments ~~under~~of long-term debt are as follows for the ~~term loans at September 30, 2019 were as follows~~years ending December 31 (in thousands):

Term Loans
Remainder of 2019 $ 2,687
2020 10,750
2021 10,750
2022 10,750
2023 1,013,188
$ 1,048,125


	Term Loans
Remainder of 2020	$	2,687
2021	10,750
2022	10,750
2023	1,013,188

Total future principal payments	$	1,037,375

~~Interest Rate Swap Agreements~~Derivative Financial Instruments

The Company is subject to interest rate risk as all borrowings under the senior secured credit facilities are subject to variable ~~interest.~~interest rates. In October 2017, the Company entered into variable-to-fixed interest rate swap agreements to mitigate the exposure to variable interest arrangements on $500 million notional amount of the outstanding term loan borrowings. These swap agreements, designated and accounted for as cash flow hedges from inception, are scheduled to mature on October 31, 2021. The Company is required to make monthly payments on the notional amount at a fixed average interest rate, plus the applicable rate for eurocurrency loans. ~~Effective as of May 31, 2018, the~~The notional amount ~~has been~~is subject to ana total interest rate of approximately 3.65%. In exchange, the Company receives interest on the notional amount at a variable rate based on the one-month LIBOR rate, subject to a 0.75% floor.

In June 2020, the Company entered into interest rate cap agreements with a total notional value of $800 million, designated and accounted for as cash flow hedges from inception, to provide the Company with interest rate protection in the event the one-month LIBOR rate increases above 1%. Interest rate cap agreements for $300 million notional value have an effective date of June 30, 2020 and expire on October 31, 2023, while interest rate cap agreements for another $500 million notional amount have a forward starting effective date of October 29, 2021, which coincides with the maturity of the interest rate swap agreements, and expire on October 31, 2023.

The interest rate swaps and interest rate caps are recorded on the Company’s consolidated balance sheet at fair value and classified based on the instruments’ maturity dates. The Company records gains or losses resulting from changes in the fair value of the interest rate swaps and interest rate caps to accumulated other comprehensive income or loss. These gains or losses are subsequently reclassified into earnings and recognized to interest expense in the Company’s consolidated statement of income in the period that the hedged interest expense on the term loan facility is recognized. The premium paid for the interest rate cap was recorded as an asset and will be allocated to each of the individual hedged interest payments on the basis of their relative fair values. The change in each respective allocated fair value amount will be reclassified out of accumulated other comprehensive income when each of the hedged forecasted transactions impacts earnings and recognized to interest expense in the Company's consolidated statement of income.

As of September 30, 2020 and December 31, 2019, the fair value of the interest rate swap agreements was a liability of $3.4 million, which was recorded in other long-term liabilities on the consolidated balance sheet. As of December 31, 2018, the fair value of the interest rate swap agreements was an asset of $7.9 million, which was recorded in other assets on the consolidated balance sheet.

~~For the three months ended September 30, 2019, the effect of the interest rate swap agreements on other comprehensive income~~derivative financial instruments was as follows (in thousands):


Derivative financial instruments	Consolidated balance sheet classification	September 30, 2020		December 31, 2019
Interest rate swaps - liability	Other long-term liabilities	$	(6,203)	$	(2,850)
Interest rate caps - asset	Other assets	$	308	$	—

Derivatives designated as cash flow hedging instruments Amount of gain (loss) recognized in other comprehensive income Consolidated statement of income classification Amount of net gain (loss) reclassified into earnings Total effect on other comprehensive income (loss)
Interest rate swaps $ (960 ) Interest expense — net $ 443
$ (1,403 )
Income tax effect 258
Income tax expense (119 ) 377
Net of income taxes $ (702 ) $ 324
$ (1,026 )

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~~For the three months ended September 30, 2018, the~~The effect of the ~~interest rate swap agreements~~derivative financial instruments on other comprehensive income (loss) was as follows (in thousands):


Derivatives designated as cash flow hedging instruments	Amount of gain (loss) recognized in other comprehensive income (loss)		Consolidated statement of income classification	Amount of net gain (loss) reclassified into earnings		Total effect on other comprehensive income (loss)
Three months ended September 30, 2020
Cash flow hedges	$	(1,015)	Interest expense — net	$	(1,468)	$	453
Income tax effect	273		Income tax expense	395		(122)
Net of income taxes	$	(742)		$	(1,073)	$	331

Three months ended September 30, 2019
Cash flow hedges	$	(960)	Interest expense — net	$	443	$	(1,403)
Income tax effect	258		Income tax expense	(119)		377
Net of income taxes	$	(702)		$	324	$	(1,026)

Derivatives designated as cash flow hedging instruments Amount of gain (loss) recognized in other comprehensive income Consolidated statement of income classification Amount of net gain (loss) reclassified into earnings Total effect on other comprehensive income (loss)
Interest rate swaps $ 1,525
Interest expense — net $ 240
$ 1,285
Income tax effect (415 ) Income tax expense (65 ) (350 )
Net of income taxes $ 1,110
$ 175
$ 935

~~For the nine months ended September 30, 2019, the effect of the interest rate swap agreements on other comprehensive income was as follows (in thousands):~~

Derivatives designated as cash flow hedging instruments Amount of gain (loss) recognized in other comprehensive income Consolidated statement of income classification Amount of net gain (loss) reclassified into earnings Total effect on other comprehensive income (loss)
Interest rate swaps $ (9,409 ) Interest expense—net $ 1,923
$ (11,332 )
Income tax effect 2,531
Income tax expense (517 ) 3,048
Net of income taxes $ (6,878 ) $ 1,406
$ (8,284 )

~~For the nine months ended September 30, 2018, the effect of the interest rate swap agreements on other comprehensive income was as follows (in thousands):~~

Derivatives designated as cash flow hedging instruments Amount of gain (loss) recognized in other comprehensive income Consolidated statement of income classification Amount of net gain (loss) reclassified into earnings Total effect on other comprehensive income (loss)
Interest rate swaps $ 10,788
Interest expense — net $ (95 ) $ 10,883
Income tax effect (2,934 ) Income tax expense 26
(2,960 )
Net of income taxes $ 7,854
$ (69 ) $ 7,923


Derivatives designated as cash flow hedging instruments	Amount of gain (loss) recognized in other comprehensive income (loss)		Consolidated statement of income classification	Amount of net gain (loss) reclassified into earnings		Total effect on other comprehensive income (loss)
Nine months ended September 30, 2020
Cash flow hedges	$	(7,536)	Interest expense — net	$	(3,109)	$	(4,427)
Income tax effect	2,027		Income tax expense	837		1,190
Net of income taxes	$	(5,509)		$	(2,272)	$	(3,237)

Nine months ended September 30, 2019
Cash flow hedges	$	(9,409)	Interest expense — net	$	1,923	$	(11,332)
Income tax effect	2,531		Income tax expense	(517)		3,048
Net of income taxes	$	(6,878)		$	1,406	$	(8,284)

During the next twelve months, the Company estimates that a net loss of ~~$1.3~~$5.8 million, pre-tax, will be reclassified from accumulated other comprehensive ~~loss~~income (loss) and recorded to interest expense, related to these ~~interest rate swap agreements.~~derivative financial instruments.

7. EARNINGS PER SHARE

The following tables set forth the computation of basic and diluted earnings per share using the two-class method (in thousands, except share and per share amounts):

Basic earnings per share: Three months ended
September 30, Nine months ended
September 30,
2019 2018 2019 2018
Net income $ 41,254
$ 33,600
$ 132,623
$ 111,324
Allocation of net income to common stockholders:
Common stock $ 41,055
$ 33,409
$ 131,988
$ 110,705
Unvested participating shares 199
191
635
619
$ 41,254
$ 33,600
$ 132,623
$ 111,324

Weighted average number of common shares:
Common stock 57,935,118
57,719,730
57,820,596
57,841,382
Unvested participating shares 280,711
330,089
277,750
323,689
Earnings per common share:
Common stock $ 0.71
$ 0.58
$ 2.28
$ 1.91


Basic earnings (loss) per share:	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Net income (loss)	$	(6,654)	$	41,254	$	24,437	$	132,623
Allocation of net income (loss) to common stockholders:
Common stock	$	(6,654)	$	41,055	$	24,331	$	131,988
Unvested participating shares	0		199		106		635
	$	(6,654)	$	41,254	$	24,437	$	132,623

Weighted average common shares outstanding:
Common stock	60,196,795		57,935,118		59,253,044		57,820,596
Unvested participating shares	249,567		280,711		258,265		277,750
Earnings (loss) per common share:
Common stock	$	(0.11)	$	0.71	$	0.41	$	2.28

Diluted earnings per share: Three months ended
September 30, Nine months ended
September 30,
2019 2018 2019 2018
Earnings allocated to common stock $ 41,055
$ 33,409
$ 131,988
$ 110,705
Earnings allocated to unvested participating shares 199
191
635
619
Adjusted earnings allocated to unvested participating shares (195 ) (187 ) (622 ) (607 )
Earnings allocated to common stock $ 41,059
$ 33,413
$ 132,001
$ 110,717

Weighted average number of common shares:
Common stock 57,935,118
57,719,730
57,820,596
57,841,382
Effect of dilutive securities 1,197,571
1,204,693
1,121,016
1,203,179
59,132,689
58,924,423
58,941,612
59,044,561
Earnings per common share:
Common stock $ 0.69
$ 0.57
$ 2.24
$ 1.88

Table of Contents


Diluted earnings (loss) per share:	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Earnings (loss) allocated to common stock	$	(6,654)	$	41,055	$	24,331	$	131,988
Earnings allocated to unvested participating shares	0		199		106		635
Adjusted earnings allocated to unvested participating shares	0		(195)		(105)		(622)
Earnings (loss) allocated to common stock	$	(6,654)	$	41,059	$	24,332	$	132,001

Weighted average common shares outstanding:
Common stock	60,196,795		57,935,118		59,253,044		57,820,596
Effect of dilutive securities	0		1,197,571		748,686		1,121,016
	60,196,795		59,132,689		60,001,730		58,941,612
Earnings (loss) per common share:
Common stock	$	(0.11)	$	0.69	$	0.41	$	2.24

Options outstanding to purchase ~~37,250~~2.8 million and ~~0.4 million~~37,250 shares of common stock were excluded from diluted earnings per share for the three months ended September 30, 2020 and 2019, respectively, and ~~2018, respectively, since their effect was anti-dilutive. Options outstanding to purchase~~1.0 million and 0.5 million shares of common stock were excluded ~~from diluted earnings per share since their effect was anti-dilutive~~ for ~~both~~ the nine months ended September 30, 2020 and 2019, ~~and 2018.~~respectively, since their effect was anti-dilutive. These options may become dilutive in the future.

8. INCOME TAXES

The Company’s effective income tax rates were ~~20.2%~~56.0% and ~~23.1%~~20.2% for the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~20.0%~~(44.2)% and ~~20.4%~~20.0% for the nine months ended September 30, 2020 and 2019, respectively. For the three and ~~2018, respectively. The~~nine months ended September 30, 2020, the Company’s annual effective ~~income~~ tax rate ~~is based upon estimated~~was highly sensitive to changes in estimates of total ordinary income ~~before income~~(loss), and therefore a reliable estimate could not be made. Accordingly, the actual effective tax rate for the ~~year, by jurisdiction, and estimated permanent and discrete tax adjustments.~~year-to-date period has been used. The effective income tax rate may fluctuate from quarter to quarter for various reasons, including changes to income (loss) before income tax, jurisdictional mix of income (loss) before income tax, valuation allowances, jurisdictional income tax rate changes, as well as discrete items such as the settlement of foreign, federal and state tax issues and the effects of excess tax benefits associated with the exercise of stock options and vesting of restricted stock, which is included as a reduction of tax expense. During the three and nine months ended September 30, 2020, the excess tax benefit from stock-based compensation expense decreased tax expense by $2.0 million and $10.6 million, respectively. During the three and nine months ended September 30, 2019, the excess tax benefit from stock-based compensation expense decreased tax expense by $2.8 million and $10.2 million, respectively. ~~During~~For the three and nine months ended September 30, ~~2018,~~2020, prior to the inclusion of the excess tax benefit ~~from stock-based compensation expense decreased~~and other discrete items, the effective income tax ~~expense by $2.4 million and $10.6 million, respectively.~~rate approximated 38%. For the three and nine months ended September 30, 2019, prior to the inclusion of the excess tax benefit and other discrete items, the effective income tax ~~rates~~rate approximated 26%~~. For the three and nine months ended September 30, 2018, prior to the inclusion of the excess tax benefit, the effective income tax rates approximated 28%~~.

The Company’s unrecognized tax benefits were ~~$5.6~~$3.8 million at September 30, ~~2019~~2020 and ~~$5.4~~$4.3 million at December 31, ~~2018.~~2019, inclusive of interest. The Company expects the unrecognized tax benefits to change over the next twelve months if certain tax matters settle with the applicable taxing jurisdiction during this time frame, or, if the applicable statute of limitations lapses. The impact of the amount of such changes to previously recorded uncertain tax positions could range from 0 to ~~$3.5 million, exclusive of interest and penalties.~~$0.3 million.

The Company and its domestic subsidiaries are subject to audit for U.S. federal income tax as well as multiple state jurisdictions. U.S. federal income tax returns are typically subject to examination by the Internal Revenue Service (“IRS”) and ~~have a~~the statute of limitations offor federal tax returns is three years. The ~~Company's~~Company’s filings for the tax years ~~2016~~2017 through ~~2018~~2019 are subject to audit based upon the federal statute of limitations.

State income tax returns are generally subject to examination for a period of three ~~years~~ to four years after filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. AsThe Company’s filings for the tax years from 2015 to 2019 are subject to audit and, as of September 30, ~~2019,~~2020, there was 1 state audit in ~~process and the tax years from 2014 to 2018 are subject to audit.~~process.

The Company is also subject to corporate income tax at its subsidiaries located in the United Kingdom, the Netherlands, India, ~~Canada,~~ Ireland, and Puerto Rico. The tax returns for the Company’s subsidiaries located in foreign jurisdictions are subject to examination for periods ranging from one ~~year~~ to five years.

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9. FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are classified using a three-level hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The hierarchy gives the highest priority to observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The Company uses observable inputs where relevant and whenever possible. The three levels of the hierarchy are defined as follows:

Level 1 — Fair value is derived using quoted prices from active markets for identical ~~investments.~~instruments.

Level 2 — Fair value is derived using quoted prices for similar instruments from active markets or for identical or similar instruments in markets that are not active; or, fair value is based on model-derived valuations in which all significant inputs and significant value drivers are observable from active markets.

Level 3 — Fair value is derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The ~~following methods and assumptions were used to estimate the fair value and determine the fair value hierarchy classification of each class of financial measurement.~~

~~The~~ carrying value of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable and accrued expenses ~~and borrowings under the revolving credit facility~~ approximates their fair value because of their short-term nature.

Financial instruments that potentially expose the Company to concentrations of credit risk consist mainly of cash and cash equivalents and accounts receivable. ~~There were no significant changes to~~During the ~~Company’s exposure to credit risk during the three and~~ nine months ended September 30, ~~2019.~~2020, the Company experienced a significant increase in cash and cash equivalents resulting from the $249.8 million net proceeds received from the capital raised. The Company mitigates its exposure by maintaining its cash and cash equivalents in financial institutions of high credit standing. The Company’s accounts receivable is derived primarily from the services it provides, and the related credit risk is dispersed across many clients in various industries with no single client accounting for more than 10% of the Company's net revenue or accounts receivable. No significant credit concentration risk existed at September 30, 2020.

Long-term Debt — The Company’s long-term debt is recorded at adjusted cost, net of original issue discounts and deferred financing costs. The fair value of the Company’s long-term debt is based on current bid prices, which approximates carrying value. As such, the Company’s long-term debt was classified as Level 1, as defined under U.S. GAAP. As of September 30, 2020, the carrying value and estimated fair value of long-term debt was $1.04 billion and $1.0 billion, respectively. As of December 31, 2019, the carrying value and estimated fair value of long-term debt was ~~$1.0~~$1.05 billion. ~~As of December 31, 2018, the carrying value and estimated fair value of long-term debt was $1.1 billion and $1.0 billion, respectively.~~

~~Interest Rate Swap Agreements~~Derivative Financial Instruments — The Company’s interest rate swap agreements and interest rate cap agreements are recorded at fair value, which were estimated using market-standard valuation models. Such models project future cash flows and discount the future amounts to a present value using market-based observable inputs. Additionally, the fair value of the interest rate swaps and interest rate caps included consideration of credit risk. The Company used a potential future exposure model to estimate this credit valuation adjustment (“CVA”). The inputs to the CVA were largely based on observable market data, with the exception of certain assumptions regarding credit worthiness. As the magnitude of the CVA was not a significant component of the fair value of the interest rate swaps and interest rate caps, it was not considered a significant input. The fair value of the interest rate swaps isand interest rate caps are classified as Level 2, as defined under U.S. GAAP. As of September 30, 2020 and December 31, 2019, the fair value of the interest rate swap agreements was a liability of ~~$3.4~~$6.2 million and $2.9 million, respectively, which ~~was~~were recorded in other long-term liabilities on the consolidated balance ~~sheet.~~sheets. As of ~~December 31, 2018,~~September 30, 2020, the fair value of the interest rate ~~swap~~cap agreements was ~~an asset of $7.9~~$0.3 million, which was recorded in other assets on the consolidated balance sheet.

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Debt Securities — During the nine months ended September 30, 2019, the Company purchased marketable debt securities, which were classified as available-for-sale. These securities were purchased by the Company's wholly-owned captive insurance company with restricted cash and are not available to fund operations. The Company’s investments in debt securities, which are classified as available-for-sale, consist of U.S. Treasury and U.S. government agency securities and certificate of deposits. These securities are held in escrow by the Company’s wholly-owned captive insurance company and were purchased with restricted cash. As such, these securities are not available to fund the Company’s operations. These securities are recorded at fair ~~value. These securities are valued~~value using quoted prices available in active markets. As such, the Company’s debt securities are classified as Level 1, as defined under U.S. GAAP. As of September 30, 2020, the fair value of the available-for-sale debt securities was $21.0 million and was classified based on the instruments’ maturity dates, with $19.6 million included in prepaid expenses and other current assets and $1.4 million in other assets on the consolidated balance sheet. As of December 31, 2019, the fair value of the available-for-sale debt securities was ~~$20.0~~$24.9 million, ~~and was classified based on the instruments' maturity dates,~~ with ~~$12.0~~$17.0 million included in prepaid expenses and other current assets and ~~$8.0~~$7.9 million in other assets on the consolidated balance sheet. At September 30, 2020 and December 31, 2019, the amortized cost was ~~$19.9 million.~~$20.9 million and $24.9 million, respectively. The debt securities held at September 30, ~~2019~~2020 had remaining maturities ranging from less than one year to approximately 1.25 years. Unrealized gains and losses, net of tax, on available-for-sale debt securities are included in accumulated other comprehensive ~~loss, which~~income (loss), and were immaterial for the three and nine months ended September 30, 2020 and 2019. The Company did not realize any gains or losses on its debt securities during the three and nine months ended September 30, 2020 and 2019. ~~The Company regularly reviews its available-for-sale debt securities for other-than-temporary impairment.~~

Liabilities for Contingent Consideration — The Company is subject to contingent consideration arrangements in connection with certain business combinations as disclosed in Note 4, Acquisitions. Liabilities for contingent consideration are measured at fair value each reporting period, with the acquisition-date fair value included as part of the consideration payable for the related business combination and subsequent changes in fair value recorded to selling, general and administrative expenses in the Company’s consolidated ~~statements~~statement of income. The fair value of the contingent consideration ~~recorded in the nine months ended September 30, 2019~~ was calculated using a real options model based on probability-weighted outcomes of meeting certain future performance targets. The key inputs to the valuation are the projections of future financial results in relation to the business. ThThe Com~~e Company~~pany classified the contingent consideration liability as a Level 3 fair value measurement due to the lack of observable inputs used in the model.

The following table provides a roll forward of the fair value of recurring Level 3 fair value measurements (in thousands):


	Nine months ended September 30, 2020
Balance at January 1, 2020	$	15,987

Settlement of contingent consideration liabilities	(1,088)

Changes in fair value	326
Foreign currency translation	(479)
Balance at September 30, 2020	$	14,746

Nine months ended September 30, 2019
Balance at January 1, 2019 $ 1,930
Issuance of contingent consideration in connection with acquisitions 16,621
Settlements of contingent consideration liabilities (650 )
Changes in fair value 540
Foreign currency translation (1,067 )
Balance at September 30, 2019 $ 17,374

Nonrecurring Fair Value Estimates — During the three and nine months ended September 30, 2020, the Company recognized impairment losses of $1.7 million and $18.6 million, respectively, on fixed assets and operating lease right-of-use assets for certain centers. The impairment losses were included in cost of services on the consolidated statement of income, which have been allocated to the full service center-based child care segment. The estimated fair value of the applicable center long-lived assets was based on the fair value of the asset groups, calculated using a discounted cash flow model, with unobservable inputs. The fair value of the fixed assets was insignificant given the current and expected cash flows of these centers and the valuation of the lease right-of-use-assets considered the amount a market participant would pay for use of the asset. The Company classified the center long-lived assets as a Level 3 fair value measurement due to the lack of observable inputs used in the model.

During the nine months ended September 30, 2020, the Company recognized a $2.1 million impairment loss on an equity investment. The impairment loss was included in cost of services on the consolidated statement of income, which has been allocated to the back-up care segment. The estimated fair value of the equity investment was based on a qualitative assessment that considered the economic environment, business prospects and transaction information, among other factors considered. The Company classified the equity investment as a Level 3 fair value measurement due to the lack of observable inputs.

10. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss), which is included as a component of stockholders’ equity, is comprised of foreign currency translation adjustments and unrealized gains ~~or losses from interest rate swaps~~(losses) on cash flow hedges and investments, net of tax. ~~The reclassification~~

Table of ~~other comprehensive income (loss) items into earnings is limited to net gains or losses on interest rate swaps that are discussed in Note 6,~~ Contents~~Credit Arrangements and Debt Obligations~~.

The changes in accumulated other comprehensive income (loss) by component were as follows (in thousands):


	Nine months ended September 30, 2020
	Foreign currency translation adjustments		Unrealized gain (loss) on cash flow hedges		Unrealized gain (loss) on investments		Total
Balance at January 1, 2020	$	(47,835)	$	(2,566)	$	70	$	(50,331)
Other comprehensive income (loss) before reclassifications, net of tax	(13,319)		(5,509)		27		(18,801)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax	—		2,272		—		2,272
Net other comprehensive income (loss)	(13,319)		(3,237)		27		(16,529)
Balance at September 30, 2020	$	(61,154)	$	(5,803)	$	97	$	(66,860)


	Nine months ended September 30, 2019												Nine months ended September 30, 2019
	Foreign currency translation adjustments			Unrealized gain (loss) on interest rate swaps			Unrealized gain (loss) on investments		Total				Foreign currency translation adjustments		Unrealized gain (loss) on cash flow hedges		Unrealized gain (loss) on investments		Total
Balance at January 1, 2019	$	(67,648	)	$	5,293		$	—	$	(62,355	)	Balance at January 1, 2019	$	(67,648)	$	5,293	$	0	$	(62,355)
Other comprehensive income (loss) before reclassifications, net of tax	(23,975		)	(6,878		)	77		(30,776		)	Other comprehensive income (loss) before reclassifications, net of tax	(23,975)		(6,878)		77		(30,776)
Amounts reclassified from accumulated other comprehensive income, net of tax	—			(1,406		)	—		(1,406		)
Net current period other comprehensive income (loss)	(23,975		)	(8,284		)	77		(32,182		)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax												Amounts reclassified from accumulated other comprehensive income (loss), net of tax	—		(1,406)				(1,406)
Net other comprehensive income (loss)												Net other comprehensive income (loss)	(23,975)		(8,284)		77		(32,182)
Balance at September 30, 2019	$	(91,623	)	$	(2,991	)	$	77	$	(94,537	)	Balance at September 30, 2019	$	(91,623)	$	(2,991)	$	77	$	(94,537)

Nine months ended September 30, 2018
Foreign currency translation adjustments Unrealized gain (loss) on interest rate swaps Total
Balance at January 1, 2018 $ (35,556 ) $ 2,260
$ (33,296 )
Other comprehensive income (loss) before reclassifications, net of tax (23,602 ) 7,854
(15,748 )
Amounts reclassified from accumulated other comprehensive income, net of tax —
69
69
Net current period other comprehensive income (loss) (23,602 ) 7,923
(15,679 )
Balance at September 30, 2018 $ (59,158 ) $ 10,183
$ (48,975 )

11. SEGMENT INFORMATION

~~Bright Horizons’ services~~The Company’s reportable segments are comprised of full service center-based child care, back-up care, and educational advisory and other services. ~~As such, the Company has determined that it has 3 operating segments, which are also its reportable segments.~~ The full service center-based child care segment includes the traditional center-based child care and early education, preschool, and elementary ~~education, which have similar operating characteristics and meet the criteria for aggregation.~~education. The Company’s back-up care segment consists of center-based back-up child care, ~~and~~ in-home child and adult/elder ~~dependent~~care, and self-sourced reimbursed care. The Company’s educational advisory and other services segment consists of tuition ~~reimbursement~~assistance and student loan repayment program ~~management and related~~administration, educational consulting services, and college admissions advisory services, as well as the Sittercity business, an online marketplace for families and caregivers, which have ~~similar operating characteristics and~~been aggregated as they do not meet the ~~criteria~~thresholds for ~~aggregation.~~separate disclosure. The Company and its chief operating decision ~~makers~~maker evaluate performance based on revenues and income from operations. Intercompany activity is eliminated in the segment results. The assets and liabilities of the Company are managed centrally and are reported internally in the same manner as the consolidated financial statements; therefore, no ~~additional~~segment asset information is produced or included herein.

Revenue and income (loss) from operations by reportable segment were as follows (in thousands):


	Full service center-based child care		Back-up care		Educational advisory and other services		Total
Three months ended September 30, 2020
Revenue	$	220,136	$	93,050	$	24,734	$	337,920
Income (loss) from operations (1)	(60,389)		46,464		7,998		(5,927)

Three months ended September 30, 2019
Revenue	$	410,789	$	80,059	$	20,736	$	511,584
Income from operations	36,961		19,711		5,957		62,629

Full service
center-based child care
Back-up care
Educational
advisory services
Total
Three months ended September 30, 2019
Revenue $ 410,789
$ 80,059
$ 20,736
$ 511,584
Income from operations⁽¹⁾
36,961
19,711
5,957
62,629

Three months ended September 30, 2018
Revenue $ 387,048
$ 66,484
$ 18,053
$ 471,585
Income from operations 34,006
16,941
4,513
55,460

(1) For the three months ended September 30, ~~2019, income~~2020, loss from operations ~~included $0.2 million of expenses related to completed acquisitions, which have been allocated to~~for the full service center-based child care ~~segment.~~segment included impairment costs of $1.7 million, of which $1.4 million related to fixed assets and $0.3 million related to operating lease right-of-use assets. Additionally, loss from operations in the full service center-based child care segment included $0.7 million in costs primarily associated with the closure of centers, including related severance and facilities costs. Refer to Note 1, Organization and Basis of Presentation, for additional information on impairment costs.

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										Full service center-based child care		Back-up care		Educational advisory and other services		Total
Nine months ended September 30, 2020									Nine months ended September 30, 2020
Revenue									Revenue	$	768,833	$	303,121	$	66,061	$	1,138,015
Income (loss) from operations (1)									Income (loss) from operations (1)	(115,484)		143,824		17,128		45,468
	Full service center-based child care		Back-up care		Educational advisory services		Total
Nine months ended September 30, 2019									Nine months ended September 30, 2019
Revenue	$	1,267,689	$	214,802	$	58,911	$	1,541,402	Revenue	$	1,267,689	$	214,802	$	58,911	$	1,541,402
Income from operations ⁽¹⁾	130,318		55,262		14,792		200,372

Nine months ended September 30, 2018
Revenue	$	1,193,794	$	179,985	$	51,162	$	1,424,941
Income from operations ⁽²⁾	115,857		47,207		12,304		175,368
Income from operations									Income from operations	130,318		55,262		14,792		200,372

(1) For the nine months ended September 30, ~~2019,~~2020, income (loss) from operations included ~~$0.6~~impairment costs of $20.7 million, of ~~expenses~~which $13.1 million related to ~~completed acquisitions, which have been allocated~~fixed assets and $5.5 million related to operating lease right-of-use assets in the full service center-based child care segment, and $2.1 million related to an equity investment in the back-up care ~~segments.~~

~~(2) For the nine months ended September 30, 2018, income~~segment. Additionally, loss from operations ~~included $1.9 million of expenses related to the May 2018 amendment to the credit agreement, the March 2018 secondary offering, and completed acquisitions, which have been allocated to~~in the full service center-based child care ~~segment.~~segment included $5.1 million in costs primarily associated with the closure of centers, including related severance and facilities costs. Refer to Note 1, Organization and Basis of Presentation, for additional information on impairment costs.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). The following cautionary statements are being made pursuant to the provisions of the Act and with the intention of obtaining the benefits of the “safe harbor” provisions of the Act. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “expects,” “may,” “will,” “should,” “seeks,” “projects,” “approximately,” “intends,” “plans,” “estimates” or “anticipates,” or, in each case, their negatives or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Quarterly Report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition and liquidity, ~~prospects,~~the impact of COVID-19 on our near term and long term operations, our expectations around the timing to open the centers that remain temporarily closed at September 30, 2020, permanent center closures, the continued operation of currently open centers, timing to re-enroll and re-ramp centers and certain back-up care services, enrollment recovery, our cost management and cost-saving initiatives, labor costs, impact of government mandates, continued performance and contributions from our back-up care segment, use of back-up care solutions, access to and impact of government relief and assistance programs including tax deferrals and credits, lease deferrals and timing for payment, our growth including growth in educational advisory services, our strategies, the industries in which we and our partners operate, demand for services, macroeconomic trends, the impact of accounting principles, pronouncements and policies, ~~including, but not limited to, the new lease standard, timing of commencement of leases, statements regarding~~ acquisitions ~~and the subsequent integration~~ and expected synergies, our fair value estimates, impairment losses, goodwill from business combinations, ~~the vesting of Company equity,~~ estimates and impact of equity transactions, unrecognized tax benefits and the impact of uncertain tax positions, our effective tax rate, the outcome of tax audits, settlements and tax liabilities, future impact of excess tax benefits, estimates and adjustments, amortization expense, the impact of foreign currency exchange rates, our credit risk, the impact of seasonality on results of operations, our share repurchase program, the outcome of litigation, legal proceedings and our insurance coverage, debt securities, our interest rate ~~swap,~~swaps and caps, interest rates and projections, interest expense, the use of derivatives or other market risk sensitive instruments, our indebtedness, borrowings under our senior credit facility and revolving credit facility, the need for additional debt or equity financings and our ability to obtain such financing, our sources and uses of cash flow, our ability to fund operations, and make capital expenditures and payments ~~and complete share repurchases~~ with cash and cash equivalents and borrowings, and our ability to meet financial obligations and comply with covenants of our senior credit facility.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those included in ~~the Company’s~~our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019, as well as the risks listed in Part II, Item 1A, “Risk Factors,” of this Quarterly Report, and other factors disclosed from time to time in our other filings with the ~~Securities and Exchange Commission.~~SEC.

Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate, are consistent with the forward-looking statements contained in this Quarterly Report, those results or developments may not be indicative of results or developments in subsequent periods.

Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this Quarterly Report speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments, except as required by law.

Introduction, Overview and ~~Overview~~COVID-19 Update

The following is a discussion of the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of Bright Horizons Family Solutions Inc. (“we” or the “Company”) for the three and nine months ended September 30, ~~2019,~~2020, as compared to the three and nine months ended September 30, ~~2018.~~2019. This discussion should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements ~~of the Company~~ and Notes thereto included in ~~the Company’s~~our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018.~~2019.

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We are a leading provider of high-quality child care and early education, ~~as well as other~~back-up care and workforce education services that are designed to help employers ~~families~~ and ~~adult learners~~their employees better ~~address the challenges of~~integrate work and family ~~life. We~~life, as well as to grow their careers. Our reporting segments are ~~organized into three operating and reporting segments:~~comprised of full service center-based child care, back-up care, and educational advisory ~~services.~~

and other services, which includes tuition assistance and student loan repayment program administration, educational consulting services, and college admissions advisory services, as well as the Sittercity business, an online marketplace for families and caregivers, which we acquired during the three months ended September 30, 2020.

We provide services primarily under multi-year contracts with employers who offer child care, ~~as well as other dependent~~back-up care, ~~solutions~~ and educational advisory and other services as part of their employee benefits packages in an effort to support employees across life and career stages and improve employee engagement, productivity, recruitment and retention. As of September 30, ~~2019,~~2020, we had more than ~~1,100~~1,200 client relationships with employers across a diverse array of industries, including more than ~~150~~175 Fortune 500 companies and more than 80 of Working Mother magazine’s ~~2019~~2020 “100 Best Companies.” At September 30, ~~2019,~~2020, we operated ~~1,083~~1,026 child care and early education centers, compared to ~~1,071~~1,083 centers at September 30, ~~2018,~~2019, and had the capacity to serve approximately ~~120,000~~115,000 children and their families in the United States, ~~as well as in~~ the United Kingdom, the Netherlands, ~~Canada~~ and India.

In March 2020, we began to experience the impact of the COVID-19 pandemic on our business, which has substantially disrupted our global operations. In mid-March, as a result of required business and school closures and shelter-in-place government mandates, we began the temporary closure of a significant portion of our child care centers, while continuing to operate critical health care client and “hub” centers to provide care and support services to the children whose parents work on the front lines of the response to the pandemic. Countries and local jurisdictions have since lifted certain restrictions, and we have reopened a significant portion of our temporarily closed centers. As of September 30, 2020, approximately 900 of our child care centers were open. Our ~~business~~centers are operating with specific COVID-19 protocols in place in order to protect the health and safety of children, families and staff, including social distancing procedures for pick-up and drop-off, daily health checks, the use of face masks by our staff, limited group sizes, and enhanced hygiene and cleaning practices. We are focused on the re-enrollment and ramping of these centers, while also continuing to phase the remaining center re-openings through the remainder of 2020, and into 2021, as conditions permit. The status of our operations is ~~subject~~as follows:

•North America: As of September 30, 2020, we had approximately 540 open centers in the United States, and approximately 120 centers remained temporarily closed. During the three months ended September 30, 2020, we re-opened approximately 325 centers and opened three new centers, as well as permanently closed approximately 50 locations where demand and economics had shifted, including the divestiture of our two centers in Canada. We are working with client partners and continuing to ~~seasonal~~assess demand in order to determine the timing and ~~quarterly fluctuations. Demand~~cadence of re-opening our remaining temporarily closed centers.

•United Kingdom:As of September 30, 2020, we had approximately 300 open centers in the United Kingdom, and four centers remained closed. During the three months ended September 30, 2020, we re-opened approximately 165 centers, opened one new center, and permanently closed six locations where demand and economics had shifted.

•Netherlands:We opened one new center during the quarter and were operating a total of 62 centers in the Netherlands as of September 30, 2020. Centers have remained operational throughout the pandemic under the Dutch government mandate that required nurseries to remain open to serve the children of parents who work in vital professions, such as health care or emergency services, and have been open to all families since May 2020.

•Back-up Care and Educational Advisory:Our other primary service offerings, back-up care and educational advisory services, have remained fully operational and available for our clients and their employees. In response to the acute need for child care support during this pandemic, we expanded back-up care services to support the needs of families affected by other child care and/or school closures, primarily through in-home and ~~early education~~self-sourced reimbursed care, and ~~elementary~~also through enhanced school ~~services has historically decreased~~age program supports.

This is a fluid environment. The broad effects of COVID-19, its duration and scope of the ongoing disruption cannot be predicted and is affected by many interdependent variables and decisions by government authorities and our client partners, as well as economic trends, and developments in the persistence and treatment of COVID-19. We cannot anticipate how long it will take for re-opened centers to reach typical enrollment levels and there is no assurance that centers currently open will continue to operate. Additionally, as we continue to analyze the current environment, we may decide to not re-open certain centers in locations where demand and economic trends have shifted. While we have experienced increased demand for certain back-up care service offerings during the ~~summer months when school is~~pandemic, such as in-home care and self-sourced reimbursed care, and more limited disruption to providing educational advisory services, these conditions and trends may not continue in ~~session, at which time~~subsequent periods. As businesses and families ~~are often on vacation or~~continue to adapt to changing conditions, we have alternative child care arrangements. In addition, our enrollment declines as older children transition to elementary schools. Demand for our services generally increases in September and October coinciding with the beginning of the new school year and remains relatively stable throughout the rest of the school year. In addition, use ofseen our back-up care services ~~tends~~shift towards the more traditional in-center and in-home service delivery as use gradually re-ramps to ~~be higher when schools~~pre-COVID-19 levels, while the temporary use of self-sourced reimbursed care decreased significantly during the third quarter. Given these factors, we expect the effects of COVID-19 to our business to continue to adversely impact our results of operations for the remainder of 2020 and into 2021.

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In response to these developments, we have implemented measures throughout the pandemic in an effort to manage costs and improve liquidity and access to financial resources while the majority of our centers were temporarily closed, and to thereby mitigate the impact on our financial position and operations. These measures included, but are not limited to, the following:

•furloughing a significant portion of our employees in ~~session~~proportion to the number of center closures, including center personnel for temporarily closed centers and ~~during holiday~~related support functions in our corporate offices;

•reducing discretionary spending and overhead costs, while prioritizing investments that support current operations and deferring to future periods ~~which can~~nonessential investments;

•temporary voluntary reductions in compensation to certain executive officers and board members;

•participating in government assistance programs, including tax deferrals, tax credits and employee wage support;

•renegotiating payment terms with vendors and landlords;

•temporary suspension of share repurchases;

•amending our credit agreement in April 2020 and May 2020 to increase the ~~operating costs~~borrowing capacity of our revolving credit facility from $225 million to $400 million; and,

•raising $249.8 million in net proceeds from the ~~program~~issuance and ~~impact~~sale of common stock in April 2020.

We will continue to work with our local teams on the ~~results~~operational decisions and prudent management of ~~operations. Our educational advisory services have limited seasonal fluctuations. Results of~~our spending to support current operations, ~~may also fluctuate from quarter~~while we continue to ~~quarter as a result of, among other things, the performance of existing centers, including~~re-ramp enrollment and ~~staffing fluctuations,~~re-open the ~~number~~remainder of our business. These challenging times highlight our crisis management abilities, our critical role in the business continuity plans of our client partners, our leadership in developing and ~~timing of new center openings, acquisitions~~implementing enhanced health and ~~management transitions,~~safety protocols, and the ~~timing of new client launches~~value that our unique service offering provides to the families and clients we serve. We remain confident in our ~~back-up~~business model, the strength of our client partnerships, the strength of our balance sheet and ~~educational advisory services,~~liquidity position, and our ability to respond to changing market conditions. Refer to Note 1, Organization and Basis of Presentation, in our condensed consolidated financial statements for additional information on the ~~length~~impact of ~~time required for new centers~~COVID-19 to achieve profitability, center closings, refurbishment or relocation, the contract model mix (profit and loss versus cost-plus) of new and existing centers, the timing and level of sponsorship payments, competitive factors and general economic conditions.

our business.

Results of Operations

The following table sets forth statement of income data as a percentage of revenue for the three months ended September 30, ~~2019~~2020 and ~~2018~~2019 (in thousands, except percentages):


	Three Months Ended September 30,
	2020		%		2019		%
Revenue	$	337,920	100.0	%	$	511,584	100.0	%
Cost of services	282,749		83.7	%	386,364		75.5	%
Gross profit	55,171		16.3	%	125,220		24.5	%
Selling, general and administrative expenses	53,301		15.8	%	53,964		10.5	%
Amortization of intangible assets	7,797		2.3	%	8,627		1.8	%
Income (loss) from operations	(5,927)		(1.8)	%	62,629		12.2	%
Interest expense — net	(9,186)		(2.7)	%	(10,955)		(2.1)	%
Income (loss) before income tax	(15,113)		(4.5)	%	51,674		10.1	%
Income tax benefit (expense)	8,459		2.5	%	(10,420)		(2.0)	%
Net income (loss)	$	(6,654)	(2.0)	%	$	41,254	8.1	%

Adjusted EBITDA (1)	$	30,113	8.9	%	$	94,759	18.5	%
Adjusted income (loss) from operations (1)	$	(2,880)	(0.9)	%	$	62,822	12.3	%
Adjusted net income (1)	$	1,259	0.4	%	$	50,848	9.9	%

Three Months Ended September 30,
2019 % 2018 %
Revenue $ 511,584
100.0 % $ 471,585
100.0 %
Cost of services 386,364
75.5 % 358,545
76.0 %
Gross profit 125,220
24.5 % 113,040
24.0 %
Selling, general and administrative expenses 53,964
10.5 % 49,427
10.5 %
Amortization of intangible assets 8,627
1.8 % 8,153
1.7 %
Income from operations 62,629
12.2 % 55,460
11.8 %
Interest expense — net (10,955 ) (2.1 )% (11,795 ) (2.5 )%
Income before income tax 51,674
10.1 %
43,665

9.3 %
Income tax expense (10,420 ) (2.0 )% (10,065 ) (2.2 )%
Net income $ 41,254
8.1 % $ 33,600
7.1 %

Adjusted EBITDA ⁽¹⁾
$ 94,759
18.5 % $ 85,217
18.1 %
Adjusted income from operations ⁽¹⁾
$ 62,822
12.3 % $ 55,460
11.8 %
Adjusted net income ⁽¹⁾
$ 50,848
9.9 % $ 42,899
9.1 %

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The following table sets forth statement of income data as a percentage of revenue for the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 (in thousands, except percentages):


	Nine Months Ended September 30,
	2020		%		2019		%
Revenue	$	1,138,015	100.0	%	$	1,541,402	100.0	%
Cost of services	908,749		79.9	%	1,149,614		74.6	%
Gross profit	229,266		20.1	%	391,788		25.4	%
Selling, general and administrative expenses	159,917		14.1	%	166,330		10.8	%
Amortization of intangible assets	23,881		2.0	%	25,086		1.6	%
Income from operations	45,468		4.0	%	200,372		13.0	%
Interest expense — net	(28,521)		(2.5)	%	(34,626)		(2.2)	%
Income before income tax	16,947		1.5	%	165,746		10.8	%
Income tax benefit (expense)	7,490		0.6	%	(33,123)		(2.2)	%
Net income	$	24,437	2.1	%	$	132,623	8.6	%

Adjusted EBITDA (1)	$	171,596	15.1	%	$	294,482	19.1	%
Adjusted income from operations (1)	$	73,285	6.4	%	$	200,998	13.0	%
Adjusted net income (1)	$	71,350	6.3	%	$	157,118	10.2	%

Nine Months Ended September 30,
2019 % 2018 %
Revenue $ 1,541,402
100.0 % $ 1,424,941
100.0 %
Cost of services 1,149,614
74.6 % 1,072,320
75.3 %
Gross profit 391,788
25.4 % 352,621
24.7 %
Selling, general and administrative expenses 166,330
10.8 % 152,776
10.7 %
Amortization of intangible assets 25,086
1.6 % 24,477
1.7 %
Income from operations 200,372
13.0 % 175,368
12.3 %
Interest expense — net (34,626 ) (2.2 )% (35,459 ) (2.5 )%
Income before income tax 165,746
10.8 % 139,909
9.8 %
Income tax expense (33,123 ) (2.2 )% (28,585 ) (2.0 )%
Net income $ 132,623
8.6 % $ 111,324
7.8 %

Adjusted EBITDA ⁽¹⁾
$ 294,482
19.1 % $ 263,788
18.5 %
Adjusted income from operations ⁽¹⁾
$ 200,998
13.0 % $ 177,283
12.4 %
Adjusted net income ⁽¹⁾
$ 157,118
10.2 % $ 136,384
9.6 %


~~(1)~~	~~Adjusted EBITDA, adjusted income from operations and adjusted net income are non-GAAP measures, which are reconciled to net income below under “Non-GAAP Financial Measures and Reconciliation.”~~

(1) Adjusted EBITDA, adjusted income (loss) from operations and adjusted net income are non-GAAP financial measures and are not determined in accordance with accounting principles generally accepted in the United States (“GAAP”). Refer to “Non-GAAP Financial Measures and Reconciliation” below for a reconciliation of these non-GAAP financial measures to their respective measures determined under GAAP and for information regarding our use of non-GAAP measures.

Three Months Ended September 30, ~~2019~~2020 Compared to the Three Months Ended September 30, ~~2018~~2019

Revenue. Revenue ~~increased $40.0~~decreased $173.7 million, or 8%34%, to ~~$511.6~~$337.9 million for the three months ended September 30, ~~2019~~2020 from ~~$471.6~~$511.6 million for the same period in ~~2018. Revenue growth is primarily~~2019. The decrease was attributable to a decrease in tuition revenue in our full service child care centers due to the continued temporary closure of some of our centers in response to the COVID-19 pandemic, and reduced enrollment in the centers that have since re-opened. This decrease was partially offset by contributions from ~~new~~expanded sales and ~~ramping child care and early education centers, expanded sales~~utilization of our back-up care and educational advisory ~~services, and typical annual tuition and price increases in the range of 3% to 4%.~~services. Revenue generated by the full service center-based child care segment in the three months ended September 30, ~~2019 increased~~2020 decreased by ~~$23.7~~$190.7 million, or 6%46%, when compared to the same period in ~~2018. The increase is due~~2019. Approximately 900 child care centers were open as of September 30, 2020, compared to 1,083 centers as of September 30, 2019. In the third quarter of 2020, we opened five new centers and made the determination to permanently close 55 center locations, where demand and economic trends have shifted. While the large majority of our centers are now serving families, we remain in ~~part~~the re-ramp phase and enrollment remains well below pre-COVID-19 levels. We expect that it will take the remainder of 2020 and throughout 2021 to ~~overall~~see enrollment ~~increases of approximately 4%, partially offset by the effect of~~recover to pre-COVID-19 levels and, as a result, we expect lower ~~foreign currency exchange rates for our United Kingdom and Netherlands operations, which had the effect of decreasing~~ revenue in the full service center-based child care segment ~~by approximately 1.5% during~~in the ~~three months ended September 30,~~fourth quarter in relation to the same period in 2019.

Revenue generated by the back-up care segment in the three months ended September 30, ~~2019~~2020 increased by ~~$13.6~~$13.0 million, or ~~20%~~16%, when compared to the same period in ~~2018.~~2019. Revenue growth in the back-up care segment iswas primarily attributable to expanded sales and increased utilization from new and ~~contributions~~existing clients, including from the temporary use of self-sourced reimbursed care, which continued for a ~~recent acquisition. Additionally,~~portion of the third quarter of 2020. The temporary use of self-sourced reimbursed care decreased significantly in relation to the prior quarter as demand for back-up care started to shift toward more traditional in-center and in-home service delivery as more centers resumed operations, and as businesses and schools re-opened. We expect the demand for back-up care will continue to shift toward traditional in-center and in-home service delivery through the remainder of 2020. We expect lower revenue in the back-up care segment in the fourth quarter compared to the same quarter in 2019 as traditional in-center and in-home use remain below pre-COVID-19 levels.

Revenue generated by the educational advisory and other services segment in the three months ended September 30, ~~2019~~2020 increased by ~~$2.7~~$4.0 million, or ~~15%~~19%, when compared to the same period in the prior year. Revenue growth in ~~the educational advisory services~~this segment is primarily attributable to expanded sales, increased utilization and ~~utilization.~~contributions from acquisitions completed in the fourth quarter of 2019 and in the third quarter of 2020.

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Cost of Services. Cost of services ~~increased $27.8~~decreased $103.6 million, or 8%27%, to ~~$386.4~~$282.7 million for the three months ended September 30, ~~2019~~2020 from ~~$358.5~~$386.4 million for the same period in ~~2018.~~2019. Cost of services in the full service center-based child care segment ~~increased $19.7~~decreased $85.5 million, or 6%26%, to ~~$329.3~~$243.8 million in the three months ended September 30, ~~2019~~2020 when compared to the same period in ~~2018. Personnel costs, which typically represent approximately 70% of total~~2019. The decrease in cost of services ~~for this segment, increased 6%~~is primarily associated with reduced enrollment associated with temporary center closures and related proportional reductions in personnel costs as a result of ~~the enrollment growth at new~~employees that were furloughed and ~~existing centers, routine wage and benefit cost increases, and labor~~contributions from government assistance programs that reduced certain payroll costs, ~~associated with centers we have added since September 30, 2018 that are in the ramping stage. In addition,~~as well as program supplies and materials ~~food and facilities~~that decreased in proportion to enrollment levels. These reductions in costs ~~which typically represent approximately 30% of total~~were partially offset by impairment costs of ~~services~~$1.7 million for ~~this segment, increased 8%~~long-lived assets incurred in connection with the ~~enrollment growth,~~impact of COVID-19 on operations, costs associated with the permanent closure of certain ~~technology expenses for programs~~centers of $0.7 million, including related severance and ~~services,~~facilities costs, and ~~the~~ incremental occupancy costs associated with centers that have been added since September 30, ~~2018.~~2019. Cost of services in the back-up care segment ~~increased $7.7~~decreased $18.8 million, or ~~19%~~39%, to ~~$48.0~~$29.2 million in the three months ended September 30, ~~2019,~~2020, primarily due to reductions in personnel costs and ~~increased~~ care provider fees associated with the services provided as traditional care utilization levels were lower than the prior year, and revenues related to ~~the expanding customer base, as well as~~self-sourced reimbursed care, offset by marketing and technology spending ~~which supports~~to support our customer user experience and service ~~delivery and operating efficiency.~~delivery. Cost of services in the educational advisory and other services segment increased ~~$0.4~~$0.7 million, or 5%7%, to ~~$9.1~~$9.8 million in the three months ended September 30, ~~2019~~2020 due to personnel ~~and technology~~ costs related to delivering services to the expanding customer ~~base, as well as ongoing spending for systems to support the long-term growth of the segment.~~base.

Gross Profit. Gross profit ~~increased $12.2~~decreased $70.0 million, or ~~11%~~56%, to ~~$125.2~~$55.2 million for the three months ended September 30, ~~2019~~2020 from ~~$113.0~~$125.2 million for the same period in ~~2018.~~2019. Gross profit margin as a percentage of revenue was ~~25%~~16% for the three months ended September 30, ~~2019,~~2020, and ~~increased~~decreased approximately 1%8% from the three months ended September 30, ~~2018.~~2019. The ~~increase in gross profit~~decrease is primarily due to ~~contributions~~reduced margins in the full service center-based child care segment from ~~new and acquired~~the temporary closure of centers, ~~increased~~reduced enrollment in ~~our mature~~the centers that have re-opened, and ~~ramping~~related impairment charges on long-lived assets, partially offset by increases in gross profit ~~and loss centers, effective operating cost management, and~~from expanded back-up care, and educational advisory and other services.

Selling, General and Administrative Expenses (“SGA”). SGA ~~increased $4.5 million, or 9%, to $53.9~~of $53.3 million for the three months ended September 30, ~~2019 compared to $49.4 million for~~2020 was relatively consistent with the same period in ~~2018.~~2019, in order to support the business as it re-ramps, including bringing back certain furloughed support personnel. SGA was ~~11%~~16% of revenue for the three months ended September 30, ~~2019, which is consistent with~~2020, compared to 11% for the same period in ~~2018. SGA increased over the comparable 2018 period primarily~~2019 due to ~~increases in personnel costs, including annual wage increases, and continued technology spending.~~the lower revenue base.

~~Amortization.~~Amortization of Intangible Assets. Amortization expense on intangible assets ofwas $7.8 million for the three months ended September 30, 2020, a decrease from $8.6 million for the three months ended September 30, 2019, ~~increased~~due to decreases from ~~$8.2~~certain intangible assets becoming fully amortized during the period, partially offset by increases from the acquisitions completed in 2019 and 2020.

Income (Loss) from Operations. Loss from operations was $5.9 million, or (2)% of revenue, for the three months ended September 30, ~~2018 due~~2020, compared to ~~the acquisitions completed in 2018 and~~ ~~2019, offset by decreases from certain intangibles becoming fully amortized during the period.~~

~~Income from Operations.~~ ~~Income~~income from operations ~~increased by $7.2 million, to~~of $62.6 million, ~~for the three months ended September 30, 2019 when compared to the same period in 2018. Income from operations was~~or 12% of revenue, for the three months ended September 30, ~~2019, which is consistent with the three months ended September 30, 2018.~~2019. The ~~increase~~decrease in income from operations was due to the following:

•Income from operations for the full service center-based child care segment ~~increased $3.0~~decreased $97.4 million, or 9%263%, in the three months ended September 30, ~~2019~~2020 when compared to the same period in ~~2018~~2019 due to ~~tuition increases and~~reduced margins from temporary center closures, reduced enrollment ~~gains over~~in the ~~prior year, contributions from new~~ centers that have ~~been added since September 30, 2018,~~re-opened and ~~effective cost management,~~related impairment charges on long-lived assets of $1.7 million, as well as costs associated with the permanent closure of certain centers of $0.7 million. These reductions were partially offset by decreases in overhead costs as a result of cost reduction efforts, including from the ~~costs incurred during the pre-opening and ramp-up~~furlough of ~~certain new lease/consortium centers opened during 2018 and 2019. In addition, lower foreign currency exchange rates for our United Kingdom and Netherlands operations decreased income from operations~~support personnel in ~~the full service segment by approximately 1% during the three months ended September 30, 2019.~~connection with center closures.

•Income from operations for the back-up care segment increased ~~$2.8~~$26.8 million, or ~~16%~~136%, in the three months ended September 30, ~~2019~~2020 when compared to the same period in ~~2018~~2019 due to expanded sales and utilization of our back-up care services as clients and families pursued additional supports as a result of business and school closures, and reduced provider fees associated with use of traditional care options in relation to the ~~expanding revenue base,~~prior year, partially offset by ~~spending for~~investments in technology to support our customer user experience and service ~~delivery and operating efficiency, and increased care provider fees associated with the incremental revenue.~~delivery.

•Income from operations for the educational advisory and other services segment increased ~~$1.4~~$2.0 million, or ~~32%~~34%, in the three months ended September 30, ~~2019~~2020 when compared with the same period in ~~2018~~2019 due to contributions from the expanding revenue base.

Net Interest Expense. Net interest expense decreased to ~~$11.0~~$9.2 million for the three months ended September 30, ~~2019~~2020 from ~~$11.8~~$11.0 million for the same period in ~~2018. The decrease in interest expense relates~~2019, due to decreased ~~average~~ borrowings ~~under~~on our revolving credit ~~facility.~~facility as well as decreases in the interest rates applicable to our debt. Including the effects of the interest rate swap arrangements, the weighted average interest ~~rate~~rates for the term loans and revolving credit facility ~~was~~were 3.1% and 3.8% for the three months ended September 30, 2020 and 2019, ~~and 2018.~~respectively. Based on our current ~~projections of~~ interest ~~rates,~~rate projections, we estimate that our overall weighted average interest rate will approximate ~~4.0%~~3.0% for the remainder of ~~2019.~~2020.

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Income Tax ~~Expense.~~Expense (Benefit). We recorded an income tax benefit of $8.5 million during the three months ended September 30, 2020, at an effective income tax rate of 56%, compared to income tax expense of $10.4 million during the three months ended September 30, 2019, at an effective income tax rate of 20%~~, compared to income tax expense of $10.1 million during~~. For the three months ended September 30, ~~2018, at an~~2020, our annual effective ~~income~~ tax rate was highly sensitive to change in estimates of ~~23%.~~total ordinary income (loss) and therefore a reliable estimate could not be made. Accordingly, the actual effective tax rate for the year-to-date period has been used. The difference inbetween the effective income tax rates as compared to the statutory income tax rates is primarily due to the effects of excess tax benefits associated with the exercise of stock options and vesting of restricted stock. During the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, the excess tax ~~benefit decreased~~benefits reduced income tax expense by ~~$2.8~~$2.0 million and ~~$2.4~~$2.8 million, respectively. The effective income tax rate would have approximated ~~26%~~38% and ~~28%~~26% for the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, prior to the inclusion of the excess tax ~~benefit~~benefits from stock-based compensation ~~expense.~~

~~Based upon our current estimates of projected excess tax benefits from the exercise of stock options~~ and vesting of restricted stock, we expect the annual effective income tax rate in 2019 to approximate 20% to 22%. This estimate could be impacted by the volume and timing of equity transactions and by the mix of international earnings.other discrete items.

Adjusted EBITDA and Adjusted Income (Loss) from Operations. Adjusted EBITDA and adjusted income from operations ~~increased $9.5~~decreased $64.6 million, or ~~11%~~68%, and ~~$7.4~~$65.7 million, or ~~13%~~105%, respectively, for the three months ended September 30, ~~2019~~2020 over the comparable period in ~~2018~~2019 primarily as a result of the ~~increase~~decrease in gross profit ~~due to additional contributions from full-service centers, including~~in the ~~impact of new and acquired centers, as well as the~~full service center-based child care segment, partially offset by growth in the back-up care and educational advisory ~~services.~~and other services segments.

Adjusted Net Income. Adjusted net income ~~increased $7.9~~decreased $49.6 million, or ~~19%~~98%, for the three months ended September 30, ~~2019~~2020 when compared to the same period in ~~2018,~~2019, primarily due to the ~~expanded~~decrease in income from ~~operations.~~operations, partially offset by a lower effective tax rate.

Nine Months Ended September 30, ~~2019~~2020 Compared to the Nine Months Ended September 30, ~~2018~~2019

Revenue. Revenue ~~increased $116.4~~decreased $403.4 million, or 8%26%, to ~~$1.5~~$1.1 billion for the nine months ended September 30, ~~2019~~2020 from ~~$1.4~~$1.5 billion for the same period in ~~2018. Revenue growth is primarily~~2019. The decrease was attributable to a decrease in tuition revenue in our full service child care centers due to the temporary closure of our centers in response to the COVID-19 pandemic, and reduced enrollment in the centers that have re-opened. The decrease was partially offset by contributions from expanded sales and utilization of our back-up care and educational advisory services, as well as contributions from new and ramping full service child care and early education centers ~~expanded sales of our back-up care and educational advisory services,~~ and typical annual tuition and price increases in the range of 3% to 4%. Revenue generated by the full service center-based child care segment in the nine months ended September 30, ~~2019 increased~~2020 decreased by ~~$73.9~~$498.9 million, or 6%39%, when compared to the same period in ~~2018,~~2019, due to the temporary closure of centers and reduced enrollment in ~~part~~centers that have re-opened. As noted above, while the large majority of our centers are now serving families, we remain in the re-ramp phase and enrollment remains well below pre-COVID-19 levels. We expect that it will take the remainder of 2020 and throughout 2021 to ~~overall~~see enrollment ~~increases of 5%, partially offset by the effect of~~recover to pre-COVID-19 levels and, as a result, we expect lower ~~foreign currency exchange rates for our United Kingdom and Netherlands operations, which decreased~~ revenue in the full service center-based child care segment ~~by approximately 1.5% for~~in the ~~nine month period.~~fourth quarter in relation to the same period in 2019.

Revenue generated by back-up care services in the nine months ended September 30, ~~2019~~2020 increased by ~~$34.8~~$88.3 million, or ~~19%~~41%, when compared to the same period in ~~2018.~~2019. Revenue growth in the back-up care segment iswas primarily attributable to expanded sales and increased utilization from new and ~~contributions from~~existing clients due to unprecedented demand for our back-up care services (in particular, for the temporary use of self-sourced reimbursed care during the second quarter and for a ~~recent acquisition. Additionally,~~portion of the third quarter) as clients and families pursued additional innovative coverage and supports as a result of continued business and school closures. Although self-sourced reimbursed care offered an important alternative to clients and families during the early stages of the pandemic and through the early part of the third quarter of 2020, demand for back-up care started to shift toward more traditional in-center and in-home service delivery in the third quarter as more centers resumed operations, and as businesses and schools re-opened. We expect the trend to continue through the remainder of 2020. As noted above, we expect lower revenue in the back-up care segment in the fourth quarter compared to the same quarter in 2019 as traditional in-center and in-home use remain below pre-COVID-19 levels.

Revenue generated by educational advisory and other services segment in the nine months ended September 30, ~~2019~~2020 increased by ~~$7.7~~$7.2 million, or ~~15%~~12%, when compared to the same period in the prior year. Revenue growth in the ~~educational advisory services~~ segment is primarily attributable to expanded sales, increased utilization and ~~utilization.~~contributions from acquisitions completed in the fourth quarter of 2019 and in third quarter of 2020.

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Cost of Services. Cost of services ~~increased~~ ~~$77.3~~decreased $240.9 million, or 7%21%, to ~~$1.1~~$0.9 billion for the nine months ended September 30, ~~2019~~2020 from $1.1 billion for the same period in ~~2018.~~2019. Cost of services in the full service center-based child care segment ~~increased $56.4~~decreased $230.7 million, or 6%23%, to ~~$996.0~~$765.3 million in the nine months ended September 30, ~~2019~~2020 when compared to the same period in ~~2018. Personnel costs increased 6% as a result~~2019. The decrease in cost of ~~the~~services is primarily due to reduced enrollment ~~growth at new and existing centers, routine wage and benefit cost increases, and labor costs~~ associated with ~~centers we have added since September 30, 2018~~temporary center closures and related proportional reductions in personnel costs and contributions from government assistance programs that ~~are in the ramping stage. In addition,~~reduced certain payroll costs, as well as program supplies and materials ~~food and facilities~~that also decreased in proportion to enrollment levels. These reductions in costs ~~increased 6%~~were partially offset by impairment costs of $18.6 million for long-lived assets incurred in connection with the ~~enrollment growth,~~impact of COVID-19 on operations, costs associated with the permanent closure of certain ~~technology investments in programs~~centers of $5.1 million, including related severance and ~~services,~~facilities costs, and ~~the~~ incremental occupancy costs associated with new centers ~~that have been~~ added since September 30, ~~2018.~~2019. Cost of services in the back-up care segment ~~increased $18.4~~decreased $13.6 million, or ~~17%~~11%, to ~~$126.1~~$112.5 million in the nine months ended September 30, ~~2019,~~2020, primarily due to reductions in personnel costs and ~~increased~~ care provider fees ~~associated with~~as traditional utilization levels were lower than the ~~services provided~~prior year and revenues related to ~~the expanding customer base as well as~~self-sourced reimbursed care, offset by marketing and technology spending ~~which supports~~to support our customer user experience and service delivery, and ~~operating efficiency.~~impairment costs incurred due to the impact of COVID-19 of $2.1 million related to an equity investment. Cost of services in the educational advisory and other services segment increased by ~~$2.5~~$3.5 million, or ~~10%~~13%, to ~~$27.5~~$31.0 million in the nine months ended September 30, ~~2019~~2020 due to personnel ~~and technology~~ costs related to delivering services to the expanding customer ~~base, as well as ongoing spending for systems to support the long-term growth of the segment.~~base.

Gross Profit. Gross profit ~~increased $39.2~~decreased $162.5 million, or ~~11%~~41%, to ~~$391.8~~$229.3 million for the nine months ended September 30, ~~2019~~2020 from ~~$352.6~~$391.8 million for the same period in ~~2018.~~2019. Gross profit margin as a percentage of revenue was 20% for the nine months ended September 30, 2020, compared to 25% for the nine months ended September 30, 2019. The decrease is primarily due to reduced margins in the full service center-based child care segment from the temporary closure of centers, reduced enrollment in the centers that have re-opened and related impairment charges on long-lived assets, partially offset by increases in gross profit from expanded back-up care, and educational advisory and other services.

Selling, General and Administrative Expenses. SGA decreased $6.4 million, or 4%, to $159.9 million for the nine months ended September 30, 2020 compared to $166.3 million for the same period in 2019 primarily as a result of cost reduction efforts during the pandemic, including from the furlough of support personnel in connection with temporary center closures, and decreases in discretionary costs such as travel. SGA was 14% of revenue for the nine months ended September 30, ~~2019, and increased approximately 1%~~2020, compared to 11% for the ~~nine months ended September 30, 2018. The increase~~same period in ~~gross profit is primarily~~2019 due to contributions from new and acquired centers, increased enrollment in our mature and ramping profit and loss centers, effective operating cost management, and expanded back-up care and educational advisory services.the lower revenue base.

~~Selling, General and Administrative Expenses.~~Amortization of Intangible Assets. ~~SGA increased $13.6 million, or 9%, to $166.3~~Amortization expense on intangible assets was $23.9 million for the nine months ended September 30, 2019 compared to $152.8 million for the same period in 2018. SGA was 11% of revenue for the nine months ended September 30, 2019, which is consistent with the same period in 2018. SGA increased over the comparable 2018 period due to increases in personnel costs including annual wage increases, and continued technology spending.

~~Amortization.~~ ~~Amortization expense on intangible assets of~~2020, a decrease from $25.1 million for the nine months ended September 30, 2019 ~~increased from $24.5 million for the nine months ended September 30, 2018~~ due to ~~the acquisitions completed in 2018 and 2019, partially offset by~~ decreases from certain intangible assets becoming fully amortized during the ~~period.~~period, partially offset by increases from the acquisitions completed in 2019 and 2020.

Income from Operations. Income from operations ~~increased~~decreased by ~~$25.0~~$154.9 million, or ~~14%~~77%, to ~~$200.4~~$45.5 million for the nine months ended September 30, ~~2019~~2020 when compared to the same period in ~~2018.~~2019. Income from operations was ~~13%~~4% of revenue for the nine months ended September 30, ~~2019, an increase~~2020, a decrease of approximately 1%9% compared to the nine months ended September 30, ~~2018.~~2019. The ~~increase~~decrease in income from operations was due to the following:

•Income from operations for the full service center-based child care segment ~~increased $14.5~~decreased $245.8 million, or ~~12%~~189%, in the nine months ended September 30, ~~2019~~2020 when compared to the same period in ~~2018. Results for~~2019 due to reduced margins from temporary center closures, reduced enrollment in the ~~nine months ended September 30, 2018 included $1.3~~centers that have re-opened and related impairment charges on long lived assets of $18.6 million, ~~of transaction~~as well as costs associated with ~~an amendment to our credit agreement and secondary offering. After taking these charges into account, income from operations increased approximately 11% over~~ the ~~comparable 2018 period due to tuition increases and enrollment gains over the prior year, contributions from new~~permanent closure of certain centers ~~that have been added since September 30, 2018, and effective cost management,~~of $5.1 million. These reductions were partially offset by decreases in overhead costs as a result of cost reduction efforts, including from the ~~costs incurred during the pre-opening and ramp-up~~furlough of ~~certain new lease/consortium centers opened during 2018 and 2019, and the incremental costs associated~~support personnel in connection with technology investments in our centers. In addition, lower foreign currency exchange rates for our United Kingdom and Netherlands operations decreased income from operations in the full service segment by approximately 1% for the nine months ended September 30, 2019.center closures.

•Income from operations for the back-up care segment increased ~~$8.0~~$88.6 million, or ~~17%~~160%, in the nine months ended September 30, ~~2019~~2020 when compared to the same period in ~~2018~~2019 due to the expanding revenue base from increased sales and utilization of our back-up care services (in particular, for self-sourced reimbursed care during the second quarter and a portion of the third quarter) as clients and families pursued additional supports as a result of business and school closures, and reduced provider fees associated with use of traditional care options in relation to the prior year, partially offset by investments in technology to support our customer user experience and service ~~delivery and operating efficiency, and increased care provider fees associated with the incremental revenue.~~delivery.

•Income from operations for the educational advisory and other services segment increased ~~$2.5~~$2.3 million, or ~~20%~~16%, for the nine months ended September 30, ~~2019~~2020 when compared to the same period in ~~2018~~2019 due to contributions from the expanding revenue base.

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Net Interest Expense. Net interest expense decreased to ~~$34.6~~$28.5 million for the nine months ended September 30, ~~2019~~2020 from ~~$35.5~~$34.6 million for the same period in ~~2018. The decrease in interest expense relates~~2019, due to decreased ~~average~~ borrowings under our revolving credit ~~facility.~~facility as well as decreases in the interest rates applicable to our debt. Including the effects of the interest rate swap arrangements, the weighted average interest ~~rate~~rates for the term loans and revolving credit facility ~~was~~were 3.2% and 3.9% ~~and 3.8%~~ for the nine months ended September 30, 2020 and 2019, ~~and 2018,~~ respectively.

Income Tax ~~Expense.~~Expense (Benefit). We recorded an income tax benefit of $7.5 million for the nine months ended September 30, 2020 at an effective income tax rate of (44)%, compared to income tax expense of $33.1 million during the nine months ended September 30, 2019, at an effective income tax rate of 20%~~, compared to income tax expense of $28.6 million during~~. For the nine months ended September 30, ~~2018, at an~~2020, our annual effective ~~income~~ tax rate was highly sensitive to change in estimates of ~~20%.~~total ordinary income (loss) and therefore a reliable estimate could not be made. Accordingly, the actual effective tax rate for the year-to-date period has been used. The difference between the effective income tax rates as compared to the statutory income tax rates iswas primarily due to the effects of excess tax benefits associated with the exercise of stock options and vesting of restricted stock. During the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 the excess tax benefit decreased income tax expense by $10.6 million and $10.2 million, respectively. The effective income tax rate may fluctuate from quarter to quarter for various reasons, including changes to income before income tax, jurisdictional mix of income before income tax, valuation allowances, jurisdictional income tax rate changes, as well as discrete items such as the settlement of foreign, federal and ~~$10.6 million, respectively.~~state tax issues and the effects of excess tax benefits associated with the exercise of stock options and vesting of restricted stock. The effective income tax rate would have approximated ~~26%~~38% and ~~28%~~26% for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, prior to the inclusion of the excess tax benefit from stock-based compensation ~~expense.~~and other discrete items.

Adjusted EBITDA and Adjusted Income from Operations. Adjusted EBITDA and adjusted income from operations ~~increased $30.7~~decreased $122.9 million, or ~~12%~~42%, and ~~$23.7~~$127.7 million, or ~~13%~~64%, respectively, for the nine months ended September 30, ~~2019~~2020 over the comparable period in ~~2018~~2019 primarily as a result of the ~~increase~~decrease in gross profit ~~due to additional contributions from~~in the full-service ~~centers, including the impact of new and acquired centers, as well as the~~center-based child care segment, partially offset by growth in the back-up care and educational advisory and other services.

Adjusted Net Income. Adjusted net income ~~increased $20.7~~decreased $85.8 million, or ~~15%~~55%, for the nine months ended September 30, ~~2019~~2020 when compared to the same period in ~~2018,~~2019, primarily due to the ~~expanded~~decrease in income from ~~operations.~~operations, partially offset by a lower effective tax rate.

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Non-GAAP Financial Measures and Reconciliation

In our quarterly and annual reports, earnings press releases and conference calls, we discuss key financial measures that are not calculated in accordance with ~~generally accepted accounting principles in the United States (“GAAP” or “U.S. GAAP”)~~GAAP to supplement our consolidated financial statements presented on a GAAP basis. These non-GAAP financial measures of adjusted EBITDA, adjusted income from operations, adjusted net income and diluted adjusted earnings per common share are reconciled from their respective measures determined under GAAP as follows (in thousands, except share data):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net income (loss)	$	(6,654)	$	41,254	$	24,437	$	132,623
Interest expense — net	9,186		10,955		28,521		34,626
Income tax expense (benefit)	(8,459)		10,420		(7,490)		33,123
Depreciation	19,496		18,453		59,292		55,341
Amortization of intangible assets (a)	7,797		8,627		23,881		25,086
EBITDA	21,366		89,709		128,641		280,799
Additional Adjustments:
COVID-19 related costs (b)	2,362		—		25,768		—
Stock-based compensation expense (c)	5,700		4,721		15,138		12,339
Other costs (d)	685		193		2,049		626
Non-cash operating lease expense (e)	—		136		—		718
Total adjustments	8,747		5,050		42,955		13,683
Adjusted EBITDA	$	30,113	$	94,759	$	171,596	$	294,482

Income (loss) from operations	$	(5,927)	$	62,629	$	45,468	$	200,372
COVID-19 related costs (b)	2,362		—		25,768		—
Other costs (d)	685		193		2,049		626
Adjusted income (loss) from operations	$	(2,880)	$	62,822	$	73,285	$	200,998

Net income (loss)	$	(6,654)	$	41,254	$	24,437	$	132,623
Income tax expense (benefit)	(8,459)		10,420		(7,490)		33,123
Income (loss) before income tax	(15,113)		51,674		16,947		165,746
Amortization of intangible assets (a)	7,797		8,627		23,881		25,086
COVID-19 related costs (b)	2,362		—		25,768		—
Stock-based compensation expense (c)	5,700		4,721		15,138		12,339
Other costs (d)	685		193		2,049		626
Adjusted income before income tax	1,431		65,215		83,783		203,797
Adjusted income tax expense (f)	(172)		(14,367)		(12,433)		(46,679)
Adjusted net income	$	1,259	$	50,848	$	71,350	$	157,118

Weighted average common shares outstanding — diluted	60,196,795		59,132,689		60,001,730		58,941,612
Diluted adjusted earnings per common share	$	0.02	$	0.86	$	1.19	$	2.67

(a)Represents amortization of intangible assets, including $5.0 million and $4.8 million for the three months ended September 30, 2020 and 2019, respectively, and $15.0 million and $14.2 million for the nine months ended September 30, 2020 and 2019, respectively, associated with intangible assets recorded in connection with our going private transaction in May 2008.

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Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Net income $ 41,254
$ 33,600
$ 132,623
$ 111,324
Interest expense — net 10,955
11,795
34,626
35,459
Income tax expense 10,420
10,065
33,123
28,585
Depreciation 18,453
17,060
55,341
50,669
Amortization of intangible assets^(a)
8,627
8,153
25,086
24,477
EBITDA 89,709
80,673
280,799
250,514
Additional Adjustments:
Non-cash operating lease expense ^(b)
136
829
718
1,055
Stock-based compensation expense ^(c)
4,721
3,715
12,339
10,304
Transaction costs ^(d)
193
—
626
1,915
Total adjustments 5,050
4,544
13,683
13,274
Adjusted EBITDA $ 94,759
$ 85,217
$ 294,482
$ 263,788

Income from operations $ 62,629
$ 55,460
$ 200,372
$ 175,368
Transaction costs ^(d)
193
—
626
1,915
Adjusted income from operations $ 62,822
$ 55,460
$ 200,998
$ 177,283

Net income $ 41,254
$ 33,600
$ 132,623
$ 111,324
Income tax expense 10,420
10,065
33,123
28,585
Income before income tax 51,674
43,665
165,746
139,909
Stock-based compensation expense ^(c)
4,721
3,715
12,339
10,304
Amortization of intangible assets ^(a)
8,627
8,153
25,086
24,477
Transaction costs ^(d)
193
—
626
1,915
Adjusted income before income tax 65,215
55,533
203,797
176,605
Adjusted income tax expense ^(e)
(14,367 ) (12,634 ) (46,679 ) (40,221 )
Adjusted net income $ 50,848
$ 42,899
$ 157,118
$ 136,384

Weighted average number of common shares — diluted 59,132,689
58,924,423
58,941,612
59,044,561
Diluted adjusted earnings per common share $ 0.86
$ 0.73
$ 2.67
$ 2.31
(b)COVID-19 related costs represent impairment costs for long-lived assets and investments, and other costs incurred as a result of the impact of COVID-19 on our operations and related management actions. For the three months ended September 30, 2020, impairment costs totaled $1.7 million in the full service center-based child care segment, and for the nine months ended September 30, 2020, impairment costs totaled $20.7 million, of which $18.6 million related to the full service center-based child care segment, and $2.1 million related to the back-up care segment. Other COVID-19 related costs totaled $0.7 million and $5.1 million for the three and nine months ended September 30, 2020, respectively, and were primarily associated with the closure of centers, including severance and facilities costs.


~~(a)~~	Represents amortization of intangible assets, including approximately $4.8 million for both the three months ended September 30, 2019 and 2018, and approximately $14.2 million for both the nine months ended September 30, 2019 and 2018, associated with intangible assets recorded in connection with our going private transaction in May 2008.


~~(b)~~	~~Represents the excess of lease expense over cash lease expense.~~

~~(c)~~

(c)Represents non-cash stock-based compensation expense in accordance with Accounting Standards Codification Topic 718, Compensation-Stock Compensation.

(d)Other costs in the three and nine months ended September 30, 2020 relate to occupancy costs incurred for our new corporate headquarters during the construction period, which represent duplicative costs in 2020 while we also continue to carry the costs for our existing corporate headquarters. Other costs in the three and nine months ended September 30, 2019 relate to transaction costs incurred in connection with completed acquisitions.

(e)Represents the excess of lease expense over cash lease expense (for periods prior to 2020).

(f)Represents income tax expense calculated on adjusted income (loss) before income tax at an effective tax rate of approximately 12% and 15% for the three and nine months ended September 30, 2020, respectively, and 23% for 2019. The effective tax rate represents a tax rate of approximately 29% for 2020 and 26% for 2019 applied to the expected adjusted income (loss) before income tax, less the estimated effect of excess tax benefits related to equity transactions. However, the jurisdictional mix of the expected adjusted income (loss) before income tax for the full year, and the timing and volume of the tax benefits associated with such future equity activity will affect these estimates and the estimated effective tax rate for the year.~~Compensation-Stock Compensation~~.


~~(d)~~	~~Represents transaction costs incurred in connection with completed acquisitions, the March 2018 secondary offering and the May 2018 amendment to the credit agreement.~~

~~(e)~~

Represents income tax expense calculated on adjusted income before income tax at an effective tax rate of approximately 23% for both 2019 and 2018. The tax rate for 2019 represents a tax rate of approximately 26% applied to the expected adjusted income before income tax for the full year, less the estimated effect of excess tax benefits related to equity transactions for the full year 2019. However, the timing and volume of the tax benefits associated with such future equity activity will affect these estimates and the estimated effective tax rate for the year.

Adjusted EBITDA, adjusted income (loss) from operations, adjusted net income and diluted adjusted earnings per common share (collectively referred to as the “non-GAAP financial measures”) are not presentations made in accordance with GAAP, and the use of the terms adjusted EBITDA, adjusted income (loss) from operations, adjusted net income and diluted adjusted earnings per common share may differ from similar measures reported by other companies. We believe the non-GAAP financial measures provide investors with useful information with respect to our historical operations. We present the non-GAAP financial measures as supplemental performance measures because we believe they facilitate a comparative assessment of our operating performance relative to our performance based on our results under GAAP, while isolating the effects of some items that vary from period to period. Specifically, adjusted EBITDA allows for an assessment of our operating performance and of our ability to service or incur indebtedness without the effect of ~~interest, taxes, and~~ non-cash charges, such as depreciation, amortization, the excess of lease expense over cash lease expense ~~and~~(prior to fiscal 2020), stock-based compensation expense, impairment costs including the costs incurred due to the impact of COVID-19, and transaction costs and other nonrecurring costs, such as ~~well as the expenses~~duplicative corporate office costs and other COVID-19 related ~~to secondary offerings, debt financing transactions, dispositions and acquisitions.~~costs, including center closing costs. In addition, adjusted income (loss) from operations, adjusted net income and diluted adjusted earnings per common share allow us to assess our performance without the impact of the specifically identified items that we believe do not directly reflect our core operations. These non-GAAP financial measures also function as key performance indicators used to evaluate our operating performance internally, and they are used in connection with the determination of incentive compensation for management, including executive officers. Adjusted EBITDA is also used in connection with the determination of certain ratio requirements under our credit agreement. Adjusted EBITDA, adjusted income (loss) from operations, adjusted net income and diluted adjusted earnings per common share are not measurements of our financial performance under GAAP and should not be considered in isolation or as an alternative to income (loss) before ~~income tax,~~taxes, net income (loss), diluted earnings (loss) per common share, net cash provided by (used in) operating, investing or financing activities or any other financial statement data presented as indicators of financial performance or liquidity, each as presented in accordance with GAAP. Consequently, our non-GAAP financial measures should not be evaluated in isolation or supplant comparable GAAP measures, but rather, should be considered together with our consolidated financial statements, which are prepared in accordance with GAAP and included in Part I, Item 1 of this Quarterly Report on Form 10-Q. ~~The Company understands~~We understand that although adjusted EBITDA, adjusted income (loss) from operations, adjusted net income and diluted adjusted earnings per common share are frequently used by securities analysts, lenders and others in their evaluation of companies, they have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

•adjusted EBITDA, adjusted income (loss) from operations and adjusted net income do not fully reflect ~~the Company’s~~our cash expenditures, future requirements for capital expenditures or contractual commitments;

•adjusted EBITDA, adjusted income (loss) from operations and adjusted net income do not reflect changes in, or cash requirements for, ~~the Company’s~~our working capital needs;

•adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on debt;

•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future; and adjusted EBITDA, adjusted income (loss) from operations and adjusted net income do not reflect any cash requirements for such replacements.

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Because of these limitations, adjusted EBITDA, adjusted income (loss) from operations and adjusted net income should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.

Liquidity and Capital Resources

The COVID-19 pandemic has substantially disrupted our global operations and we are in a fluid environment. The broad effects of COVID-19, its duration and full impact to our operations are difficult to predict, due in large part to the interdependence of our operations with the operating decisions and requirements of our client partners and government authorities, as well as economic trends, and developments in the persistence and treatment of COVID-19. We have taken a number of actions described below to increase our liquidity and strengthen our financial position as we navigate these uncertain times.

Our primary cash requirements are for the ongoing operations of our existing child care centers, back-up care, ~~and~~ educational advisory and other services, ~~the addition of new centers through development or acquisition,~~ and debt financing obligations. Our primary sources of liquidity are our existing cash, cash flows from operations and borrowings available under our revolving credit facility. Our revolving credit facility is part of our ~~$1.3 billion~~ senior secured credit facilities, which consist of a ~~$1.1 billion~~ secured term loan facility and a ~~$225~~$400 million revolving credit facility. There were no borrowings outstanding on our revolving credit facility at September 30, ~~2019,~~2020 and ~~$118.2 million borrowings were outstanding at~~ December 31, ~~2018.~~2019. In April and May 2020, we amended our existing senior credit facilities to, among other changes, increase the borrowing capacity of our revolving credit facility by $175 million, to a total of $400 million, modify the interest rates applicable to borrowings outstanding on the revolving credit facility, and modify the terms of the applicable covenants. Refer to Note 6, Credit Arrangements and Debt Obligations, in our condensed consolidated financial statements for additional information on the amendments to our credit agreement.

We had ~~$48.5~~$365.3 million in cash ($~~56.9~~376.2 million including restricted cash) at September 30, 2020, of which $30.9 million was held in foreign jurisdictions, compared to $27.9 million in cash ($31.2 million including restricted cash) at December 31, 2019, of which ~~$13.3~~$14.2 million was held in foreign jurisdictions. Operations outside of North America accounted for 22% and 23% of ~~the Company’s~~our consolidated revenue ~~for~~in the nine months ended September 30, ~~2019.~~2020 and 2019, respectively. The net impact on our liquidity from changes in foreign currency exchange rates was not material for the nine months ended September 30, 2020 and 2019, and ~~2018, and the Company does~~we do not currently expect that the effects of changes in foreign currency exchange rates will have a material net impact on ~~the Company’s~~our liquidity, capital resources or results from operations for the remainder of ~~2019.~~2020.

On April 21, 2020, we completed the issuance and sale of 2,138,580 shares of unregistered common stock to Durable Capital Master Fund LP at a price of $116.90 per share. We raised net proceeds from the offering of $249.8 million, which further strengthened our liquidity and financial position and increased our cash and cash equivalents.

We had working capital of $110.7 million and a working capital deficit of ~~$241.9 million and $289.9~~$254.4 million at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Our working capital improvement is related to the capital raised from the issuance and sale of stock in April 2020. We typically have a working capital deficit that has primarily arisen from using cash generated from operations to make long-term investments in fixed assets and acquisitions, and from share repurchases. We anticipate that ~~we will continue to generate positive~~our cash flows from operating activities will continue to be adversely impacted at least during the temporary closure of our centers and ~~that the cash generated~~while our re-opened centers ramp enrollment; this will be ~~used principally to fund ongoing operations of~~supplemented with our ~~new and~~ existing ~~full service child care centers and expanded operations in the back-up care and educational advisory segments,~~cash, as well as borrowings available under our revolving credit facility to ~~make scheduled~~fund operations. As we focus on the re-enrollment and ramping of re-opened centers, as well as re-opening our remaining temporarily closed centers in the coming months, we will continue to manage our discretionary operating and capital spending and prioritize investments that support current operations and strategic opportunities, as well as the principal and interest payments on ~~debt~~our debt.

We have participated in certain government assistance programs, including certain tax deferrals and ~~for share repurchases.~~

~~The Company adopted Accounting Standards Codification No. 842,~~ ~~Leases (ASC 842), effective January 1, 2019. Upon adoption,~~tax credits allowed pursuant to the ~~Company recognized operating lease right-of-use assets,~~CARES Act in the United States, as well as certain tax deferrals, tax credits, and employee wage support in the ~~related short-term~~United Kingdom, and may continue to do so in the future. During the three and nine months ended September 30, 2020, $20.3 million and $61.5 million was recorded as a reduction to cost of services, respectively, in relation to these benefits. As of September 30, 2020, $16.0 million was recorded in prepaid expenses and other current assets on the consolidated balance sheet for amounts due from government assistance programs. Additionally, approximately $3.0 million and $12.4 million was recorded in accounts payable and accrued expenses and other long-term liabilities, ~~for~~respectively, related to payroll tax deferrals. There is no assurance that these government assistance programs will continue in the ~~rights and obligations created by leases with lease terms longer than twelve months. The Company's working capital deficit increased as a result of the adoption due~~future at current levels, or at all.

In response to the ~~additional short-term liabilities recorded. The Company adopted ASC 842 using~~broad effects of COVID-19, we have re-negotiated certain payment terms with lessors to mitigate the ~~modified retrospective method, electing to use~~impact on our financial position and operations. As of September 30, 2020, we had $12.1 million in lease payment deferrals that are payable over the ~~effective date as the date~~next year.

Table of ~~initial application. Therefore, comparative information for prior periods has not been adjusted. Refer to the recently adopted pronouncements section of Note 1,~~ Contents~~Organization and Basis of Presentation, and Note 3,~~ ~~Leases, in our condensed consolidated financial statements for further discussion of the adoption of the new lease standard.~~

The board of directors ~~of the Company~~ authorized a share repurchase program of up to $300 million of ~~the Company’s~~our outstanding common stock, effective June 12, 2018. During the nine months ended September 30, ~~2019,~~2020 and prior to the ~~Company~~impact of the pandemic on our operations, we repurchased ~~80,001~~231,313 shares for ~~$12.4~~$32.2 million, and at September 30, ~~2019, $246.6~~2020, $194.9 million remained available under the repurchase program. All repurchased shares have been retired. At this time, we have temporarily suspended share repurchases as we prioritize investments to the most critical operating areas.

We believe that funds provided by operations, our existing cash balances, and borrowings available under our revolving credit facility will be adequate to ~~meet planned operating~~fund all obligations and ~~capital expenditures~~liquidity requirements for at least the next ~~12 months under current operating conditions.~~twelve months. However, ~~if we were~~prolonged disruptions to ~~undertake any significant acquisitions or investments in the purchase~~our operations, including as a result of ~~facilities for new or existing~~required school, child care and ~~early education centers, which requires~~business closures and shelter-in-place government mandates in response to the COVID-19 pandemic, may require financing beyond our existing cash and borrowing capacity, and it may be necessary for us to obtain additional debt or equity financing. We may not be able to obtain such financing on reasonable terms, orif at all.


Cash Flows	Nine Months Ended September 30,						Cash Flows	Nine Months Ended September 30,
	2019			2018				2020		2019
	(In thousands)							(In thousands)
Net cash provided by operating activities	$	272,430		$	239,696		Net cash provided by operating activities	$	169,853	$	272,430
Net cash used in investing activities	$	(126,864	)	$	(114,293	)	Net cash used in investing activities	$	(48,457)	$	(126,864)
Net cash used in financing activities	$	(127,169	)	$	(118,247	)
Net cash provided by (used in) financing activities							Net cash provided by (used in) financing activities	$	223,372	$	(127,169)
Cash, cash equivalents and restricted cash — beginning of period	$	38,478		$	36,570		Cash, cash equivalents and restricted cash — beginning of period	$	31,192	$	38,478
Cash, cash equivalents and restricted cash — end of period	$	56,909		$	43,455		Cash, cash equivalents and restricted cash — end of period	$	376,246	$	56,909

Cash Provided by Operating Activities

Cash provided by operating activities was ~~$272.4~~$169.9 million for the nine months ended September 30, ~~2019,~~2020, compared to ~~$239.7~~$272.4 million for the same period in ~~2018.~~2019. The ~~increase~~decrease in cash provided by operating activities primarily resulted from the ~~$21.3~~$108.2 million ~~increase~~decrease in net income from the prior year, and from changes in working capital arising from the timing of billings and payments when compared to the prior year, including increases in accounts receivable associated with the increased volume in the back-up care segment, and an increase in other current assets for amounts due from government support programs which were not present in the prior year. The decrease in cash provided by operating activities was partially offset by client deposits, the effects of payroll tax and rent payment deferrals, and tenant improvement allowances during the period.

Cash Used in Investing Activities

Cash used in investing activities was ~~$126.9~~$48.5 million for the nine months ended September 30, ~~2019~~2020, compared to ~~$114.3~~$126.9 million for the same period in ~~2018~~2019, and was related to fixed asset additions, acquisitions, and other investments. The ~~increase~~decrease in cash used in investing activities was primarily related to ~~an increase in~~a lower volume of fixed asset ~~purchases for new child care centers, maintenance~~additions and ~~refurbishments~~acquisitions in ~~our existing centers,~~2020 as we prioritized investments to the most critical operating areas in response to the COVID-19 pandemic, and ~~continued investments in technology, equipment and furnishings. During the nine months ended September 30, 2019, the Company invested~~an investment of $19.8 million in debt securities in 2019, which were purchased by our wholly-owned captive insurance company using restricted ~~cash, and acquired a 20% interest~~cash. During the nine months ended September 30, 2020, we invested $44.5 million, net of proceeds from the sale of fixed assets, in ~~a provider of full service center-based~~fixed asset purchases for new child care centers, and ~~back-up care services~~maintenance and refurbishments in ~~Germany for $5.8 million. Additionally,~~our existing centers, compared to a net investment of $70.2 million during the ~~Company~~same period in the prior year. We used ~~$30.7~~$8.1 million to acquire ~~one back-up care provider and six centers~~three businesses in the nine months ended September 30, ~~2019,~~2020, compared to ~~$51.7~~$30.7 million used to acquire ~~28 centers~~six businesses in the nine months ended September 30, ~~2018.~~

2019.

Cash ~~Used in~~Provided by (Used in) Financing Activities

~~The Company used $127.2 million in~~Cash provided by financing activities inwas $223.4 million for the nine months ended September 30, ~~2019~~2020 compared to ~~$118.2~~cash used of $127.2 million for the same period in ~~2018.~~2019. Cash provided by financing activities for the nine months ended September 30, 2020 was primarily related to proceeds raised from the issuance and sale of common stock in a private transaction of $249.8 million and proceeds from the exercise of stock options and the issuance and sale of restricted stock of $27.1 million, partially offset by cash used for share repurchases of $32.7 million, taxes paid related to the net share settlement of stock awards totaling $8.9 million and payments of debt principal of $8.1 million. Cash used in financing activities for the nine months ended September 30, 2019 ~~was~~consisted primarily ~~for~~of repayments of $117.9 million, net of borrowings, on the revolving credit facility, share repurchases of $12.0 million, ~~payments of debt principal of $8.1 million, and~~ taxes paid related to the net share settlement of stock awards totaling $6.5 million, and payments of debt principal of $8.1 million. These uses of cash were offset by proceeds primarily from the exercise of stock options of $17.6 million, and from the issuance and sale of restricted stock of $3.9 million. Cash used in financing activities for the nine months ended September 30, 2018 consisted principally of share repurchases of $85.7 million, repayments of $33.1 million, net of borrowings, on the revolving credit facility, payments of debt principal of $8.1 million, and taxes paid related to the net share settlement of stock awards totaling $7.5 million. These uses of cash werepartially offset by proceeds from the exercise of stock options ~~of $14.9 million,~~ and ~~from~~ the issuance and sale of restricted stock of ~~$4.5~~$21.5 million.

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Debt

~~As of September 30, 2019, the Company’s $1.3 billion~~Our senior secured credit facilities ~~consisted~~consist of a ~~$1.1 billion~~ secured term loan facility and a ~~$225 million~~multi-currency revolving credit facility. The term loans mature on November 7, 2023 and require quarterly principal payments of $2.7 million, with the remaining principal balance due on November 7, 2023.

Outstanding term loan borrowings were as follows (in thousands):


	September 30, 2020		December 31, 2019
Term loans	$	1,037,375	$	1,045,438
Deferred financing costs and original issue discount	(4,136)		(6,639)
Total debt	1,033,239		1,038,799
Less current maturities	(10,750)		(10,750)
Long-term debt	$	1,022,489	$	1,028,049

In April and May 2020, we amended our existing senior credit facilities to, among other things, increase the borrowing capacity of our revolving credit facility from $225 million to $400 million, modify the interest rates applicable to borrowings outstanding on the revolving credit facility, and modify the terms of the applicable covenants. The revolving credit facility matures on July 31, 2022. There were no borrowings outstanding on the revolving credit facility at September 30, 2020 and December 31, 2019, with the full line available for borrowings. Borrowings outstanding on the revolving credit facility were $118.2 million at December 31, 2018, with $106.8 million of the revolving credit facility available for borrowings. The revolving credit facility matures on July 31, 2022.

Borrowings under the credit agreement are subject to variable ~~interest rates. The Company mitigates its~~interest. We mitigate our interest rate exposure with variable-to-fixed interest rate swap agreements with an underlying fixed notional ~~amount~~value of $500 million. These swap agreements, designated and accounted for as cash flow hedges from inception, are scheduled to mature on October 31, 2021. The weighted average interest rate for the term loans was 3.22% and 3.92% for the nine months ended September 30, 2020 and 2019, respectively, including the impact of the interest rate swap agreements.

In June 2020, we entered into interest rate cap agreements with a total notional value of $800 million. These interest rate cap agreements, designated and accounted for as cash flow hedges from inception, provide us with interest rate protection in the event the one-month LIBOR rate increases above 1%. Interest rate cap agreements for $300 million notional value have an effective date of June 30, 2020 and expire on October 31, 2023, while interest rate cap agreements for another $500 million notional amount have a forward starting effective date of October 29, 2021, which coincides with the maturity of our existing interest rate swap agreements, and expire on October 31, 2023. As of September 30, 2020, the fair value of the interest rate cap agreements was $0.3 million.

All obligations under the senior secured credit facilities are secured by substantially all the assets of ~~the Company’s~~our U.S. subsidiaries. The senior secured credit facilities contain a number of covenants that, among other things and subject to certain exceptions, may restrict the ability of Bright Horizons Family Solutions LLC, our wholly-owned subsidiary, and its restricted subsidiaries, to: incur certain liens; make investments, loans, advances and acquisitions; incur additional indebtedness or guarantees; pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; engage in transactions with affiliates; sell assets, including capital stock of our subsidiaries; alter the business conducted; enter into agreements restricting our subsidiaries’ ability to pay dividends; and consolidate or merge.

The credit agreement governing the senior secured credit facilities contains certain customary affirmative covenants and events of default. ~~We were in compliance with our financial covenants at September 30, 2019.~~ Refer to Note 6, Credit Arrangements and Debt Obligations,, in our condensed consolidated financial statements for additional information on our debt and credit ~~arrangements.~~arrangements, and covenant requirements.

Off-Balance Sheet Arrangements

As of September 30, ~~2019,~~2020, we had no off-balance sheet arrangements.

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Critical Accounting Policies

For a discussion of our “Critical Accounting Policies,” refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, ~~2018. Other than changes to the accounting policy for leases as a result of the adoption of Accounting Standards Update No. 2016-02,~~ ~~Leases (Topic 842), there~~2019. There have been no material changes to our critical accounting policies since December 31, ~~2018. Refer to the recently adopted pronouncements section of Note 1,~~ ~~Organization and Basis of Presentation, and Note 3,~~ ~~Leases, in our condensed consolidated financial statements for further discussion of the adoption of the new lease standard and our accounting policies.~~2019.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from changes in interest rates and fluctuations in foreign currency exchange rates. ~~During~~Other than the ~~nine months ended September 30, 2019, our wholly-owned captive insurance entity purchased $19.8 million~~broad effects of ~~marketable debt securities, which were classified as available-for-sale. The Company's investments in debt securities consist of U.S. Treasury~~the COVID-19 pandemic and ~~U.S. government agency securities and carry a fixed coupon rate. As of September 30, 2019, a hypothetical increase in interest rates of 100 basis points would not have a material adverse~~its negative impact on the ~~fair value of our investment portfolio. Any unrealized gains or losses are recorded in accumulated other comprehensive loss~~global economy and ~~are realized only if we sold the underlying debt securities prior to maturity.~~

~~Other than the purchases of the marketable debt securities,~~major financial markets, there have been no material changes in ~~the Company's~~our exposure to interest rate or foreign currency exchange rate fluctuations since December 31, ~~2018.~~2019. See Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 for further information regarding market risk.

In addition, during the nine months ended September 30, 2020, we entered into interest rate cap agreements with a total notional value of $800 million. These interest rate cap agreements provide us with interest rate protection in the event the one-month LIBOR rate increases above 1%. Interest rate cap agreements for $300 million notional value have an effective date of June 30, 2020 and expire on October 31, 2023, while interest rate cap agreements for another $500 million notional amount have a forward starting effective date of October 29, 2021, which coincides with the maturity of the interest rate swap agreements, and expire on October 31, 2023. We may enter into additional derivatives or other market risk sensitive instruments in the future for the purpose of hedging or for trading purposes. Refer to Note 6, Credit Arrangements and Debt Obligations, in our condensed consolidated financial statements for additional information on interest rate cap agreements.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of September 30, ~~2019, the Company~~2020, we conducted an evaluation under the supervision and with the participation of ~~the Company’s~~ management, including ~~the Company’s~~our Chief Executive Officer and Chief Financial Officer ~~(its~~(our principal executive officer and principal financial officer, respectively), regarding the effectiveness of the design and operation of ~~the Company’s~~our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). The term “disclosure controls and procedures” means controls and other procedures that are designed to ensure that information required to be disclosed ~~by the Company~~ in reports that we file or submit under the Exchange Act ~~are~~is recorded, processed, summarized and reported within the requisite time periods and that such disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act ~~are~~is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of September 30, ~~2019.~~2020.

Changes in Internal Control over Financial Reporting

There have been no changes in ~~the Company’s~~our internal control over financial reporting that occurred during the quarter ended September 30, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal control over financial reporting due to the ~~Company’s~~COVID-19 pandemic. We are continually monitoring and assessing its impact on the design, implementation and operating effectiveness of our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are, from time to time, subject to claims, suits and matters arising in the ordinary course of business, some of which have not been fully adjudicated. Such claims have in the past generally been covered by insurance. We believe the resolution of such legal matters will not have a material adverse effect on our financial condition, results of operations or cash flows, although we cannot predict the ultimate outcome of any such actions. ~~There~~Furthermore, there can be no assurance that our insurance will be adequate to cover all liabilities that may arise out of claims or matters brought against us.

Item 1A. Risk Factors

Our operations and financial results are subject to various risks and uncertainties, including those disclosed in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, which could adversely affect our business, financial condition and operating results. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties, not presently known to us or that we currently deem immaterial, may also materially impair our business, financial condition or results of operations. There have been no material changes to our risk factors since our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019, with the exception of the addition of the following risk factor:

The global COVID-19 pandemic has significantly disrupted our business and our financial condition and operating results and will continue to adversely impact our business.

The COVID-19 pandemic has substantially disrupted our global operations. We expect to continue to be impacted as the situation remains dynamic and subject to rapid and potentially material changes. As of September 30, 2020, we operated 1,026 child care and early education centers with the capacity to serve approximately 115,000 children and their families, of which approximately 900 child care centers with the capacity to serve approximately 100,000 children were open after temporary center closures in response to the COVID-19 pandemic. While we are focused on the re-enrollment and ramping of our centers and continuing the phased re-opening of our centers that remain temporarily closed, the continued or additional disruptions to our business and potential adverse impacts to our financial condition and results of operations resulting from the COVID-19 pandemic include, but are not limited to:

•significant changes in the conditions of the markets we operate in, including required school and business closures, shelter-in-place mandates or new lockdown orders, limiting our ability to provide our services, especially center-based child care and center-based back-up child care, and potentially resulting in continued center closures or permanent center closures;

•reduced enrollment upon the re-opening of centers and difficulty re-ramping enrollment as families may limit their participation in various public activities and gatherings, including group child care, or as social distancing protocols and other licensing regulations may reduce group sizes or otherwise affect the overall capacity of children we can serve;

•inability to hire and maintain an adequate level of center staff requiring us to reduce enrollment in order to comply with mandated ratios, inability to retain teachers after long periods of furlough, and the impact to our operations if a significant percentage of our workforce is unable to return to work because of illness, quarantine, worker absenteeism, limitations on travel, or government or social distancing restrictions, which may have a disproportionate impact on our business compared to other companies that depend less on the in-person provision of services;

•reduced or shifting demand for our services due to adverse and uncertain economic and demographic conditions, including as a result of clients that have been adversely impacted, and/or increased unemployment, continued school and business closures, new lockdown orders, long-term shift to an at-home workforce, and general effects of a broad-based economic recession;

•incremental costs associated with mitigating the effects of the pandemic, additional procedures and protocols required to maintain health and safety at our centers, and costs and reputational harm associated with a potential COVID-19 outbreak at our centers;

•a decrease in revenues due to clients requesting refunds or renegotiating contracts for reduced or changing services;

•the potential deterioration in the collectability of our existing accounts receivable and a decrease in the generation of new revenue due to the potential diminished financial health of our clients;

•inability to implement our growth strategies due to prolonged business contraction and reduced capital expenditures and cost-saving initiatives;

•delayed re-opening or permanent closure of centers outside of our control due in large part to the interdependence of our operations with our client partners’ operating decisions and requirements as well as decisions by governmental authorities regarding school and business closures and requirements for re-opening;

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•legal actions or proceedings related to COVID-19;

•potential asset impairments or write-downs as we review assets impacted as a result of the ongoing COVID-19 pandemic;

•reduction in our liquidity position limiting our ability to service our indebtedness and our future ability to incur additional indebtedness or financing; and,

•further downgrades to our credit rating by ratings agencies which could reduce our ability to access capital markets.

These factors could place limitations on our ability to operate effectively and could have a material adverse effect on our operations, financial condition and operating results. As the situation continues to evolve and more information and guidance becomes available, we may adjust our current plans, policies and procedures to address the rapidly changing variables related to the pandemic. Additional impacts may arise of which we are currently not aware, the nature and extent of which will depend on future developments which are highly uncertain and cannot be predicted.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The table below sets forth information regarding purchases of our common stock during the quarter ended September 30, ~~2019:~~2020:


Period	Total Number of Shares Purchased (a)	Average Price Paid per Share (b)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) (c)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (In thousands) (1) (d)
July 1, 2020 to July 31, 2020	—	$	—	—	$	194,850
August 1, 2020 to August 31, 2020	—	$	—	—	$	194,850
September 1, 2020 to September 30, 2020 (2) (3)	1,948	$	88.28	—	$	194,850
	1,948			—

(1) The board of directors authorized a share repurchase program of up to $300 million of our outstanding common stock effective June 12, 2018. The share repurchase program has no expiration date. All repurchased shares have been retired.

(2) During the month of September 2020, we retired a total of 131 shares that had been issued pursuant to a restricted stock award agreement in connection with the payment of tax withholding obligations arising as a result of the vesting of such restricted stock awards. The shares were valued using the transaction date and closing stock price for purposes of such tax withholdings. Shares retired in connection with the payment of tax withholding obligations are not included in, and are not counted against, our $300 million share repurchase authorization.

(3) During the month of September 2020, we repurchased 1,817 shares of unvested restricted stock awards that were subject to forfeiture resulting from the grantees' termination of service with us for an aggregate $0.2 million pursuant to the certain restricted stock award agreement. The purchase price was equal to the purchase price paid for by the grantee on the date of grant as provided in the restricted stock award agreement.

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
(In thousands) (1)
July 1, 2019 to July 31, 2019 —
$ —
—
$ 258,364
August 1, 2019 to August 31, 2019 ⁽¹⁾
25,401
$ 158.56
25,401
$ 254,336
September 1, 2019 to September 30, 2019 ⁽¹⁾
50,100
$ 154.82
50,100
$ 246,580
75,501
75,501


~~(1)~~	The board of directors of the Company authorized a share repurchase program of up to $300 million of the Company’s outstanding common stock effective June 12, 2018. The share repurchase program has no expiration date. All repurchased shares have been retired.

Item 3. Defaults Upon Senior Securities

~~Not applicable.~~None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits

(a) Exhibits:



Exhibit Number						Exhibit Title
31.1*						Principal Executive Officer Certification Pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Principal Financial Officer Certification Pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**						Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**						Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*						Inline XBRL Instance Document - the instance document does not appear in Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*						Inline XBRL Taxonomy Extension Schema ~~Document~~Document.
101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase ~~Document~~Document.
101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase ~~Document~~Document.
101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase ~~Document~~Document.
101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase ~~Document~~Document.
104						Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101).



*			Exhibits filed herewith.
**			Exhibits furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



BRIGHT HORIZONS FAMILY SOLUTIONS INC.
Date:	November ~~6, 2019~~9, 2020	By:	/s/ Elizabeth Boland
			Elizabeth Boland
			Chief Financial Officer
			(Duly Authorized Officer)

3742



PART I. FINANCIAL INFORMATION		Page
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2325
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3438
Item 4.	Controls and Procedures	3438
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	3539
Item 1A.	Risk Factors	3539
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3540
Item 3.	Defaults Upon Senior Securities	3540
Item 4.	Mine Safety Disclosures	3540
Item 5.	Other Information	3540
Item 6.	Exhibits	3641
Signatures		3742

BRIGHT HORIZONS FAMILY SOLUTIONS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited)

	September 30, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	48,529		$	15,450
Accounts receivable — net	117,573			131,178
Prepaid expenses and other current assets	62,027			47,263
Total current assets	228,129			193,891
Fixed assets — net	601,168			597,141
Goodwill	1,371,905			1,347,611
Other intangibles — net	305,918			323,035
Operating lease right-of-use assets	658,134			—
Other assets	45,972			62,628
Total assets	$	3,211,226		$	2,524,306
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	10,750		$	10,750
Borrowings under revolving credit facility	—			118,200
Accounts payable and accrued expenses	180,577			154,195
Current portion of operating lease liabilities	80,905			—
Deferred revenue	175,163			170,416
Other current liabilities	22,596			30,224
Total current liabilities	469,991			483,785
Long-term debt — net	1,030,254			1,036,870
Operating lease liabilities	643,089			71,817
Other long-term liabilities	94,308			75,368
Deferred revenue	5,258			5,683
Deferred income taxes	73,831			71,306
Total liabilities	2,316,731			1,744,829
Stockholders’ equity:
Preferred stock, $0.001 par value; 25,000,000 shares authorized and no shares issued or outstanding at September 30, 2019 and December 31, 2018	—			—
Common stock, $0.001 par value; 475,000,000 shares authorized; 57,917,567 and 57,494,468 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively	58			57
Additional paid-in capital	663,227			648,651
Accumulated other comprehensive loss	(94,537		)	(62,355		)
Retained earnings	325,747			193,124
Total stockholders’ equity	894,495			779,477
Total liabilities and stockholders’ equity	$	3,211,226		$	2,524,306



	Three months ended September 30, 2018
	Common Stock				Additional Paid-in Capital			Treasury Stock, at Cost		Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Total Stockholders’ Equity
	Shares		Amount		Additional Paid-in Capital			Treasury Stock, at Cost		Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Total Stockholders’ Equity
Balance at July 1, 2018	57,660,575		$	58	$	676,093		$	—	$	(39,996	)	$	112,867	$	749,022
Stock-based compensation expense					3,715										3,715
Issuance of common stock under the Equity Incentive Plan	119,517		—		3,233										3,233
Shares received in net share settlement of stock option exercises and vesting of restricted stock	(3,410	)	—		(378		)								(378		)
Other comprehensive loss										(8,979		)			(8,979		)
Net income													33,600		33,600
Balance at September 30, 2018	57,776,682		$	58	$	682,663		$	—	$	(48,975	)	$	146,467	$	780,213



	Nine months ended September 30, 2019
Operating Cash Flows:
Cash paid for amounts included in the measurement of lease liabilities	$	94,775
Non-cash Transactions:
Operating right-of-use assets obtained in exchange for operating lease liabilities — net	$	83,772



	Operating Leases
Remainder of 2019	$	22,288
2020	123,309
2021	112,001
2022	106,257
2023	97,811
Thereafter	541,596
Total lease payments	1,003,262
Less imputed interest	(279,268		)
Present value of lease liabilities	723,994
Less current portion of operating lease liabilities	(80,905		)
Long-term operating lease liabilities	$	643,089



	Operating Leases
2019	$	120,352
2020	114,628
2021	101,710
2022	95,529
2023	87,530
Thereafter	476,861
Total future minimum lease payments	$	996,610



	Intangible asset amortization
Remainder of 2019	$	8,033
2020	$	29,919
2021	$	26,890
2022	$	24,626
2023	$	23,790



Basic earnings per share:	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018
Net income	$	41,254	$	33,600	$	132,623	$	111,324
Allocation of net income to common stockholders:
Common stock	$	41,055	$	33,409	$	131,988	$	110,705
Unvested participating shares	199		191		635		619
	$	41,254	$	33,600	$	132,623	$	111,324

Weighted average number of common shares:
Common stock	57,935,118		57,719,730		57,820,596		57,841,382
Unvested participating shares	280,711		330,089		277,750		323,689
Earnings per common share:
Common stock	$	0.71	$	0.58	$	2.28	$	1.91



Diluted earnings per share:	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
Earnings allocated to common stock	$	41,055		$	33,409		$	131,988		$	110,705
Earnings allocated to unvested participating shares	199			191			635			619
Adjusted earnings allocated to unvested participating shares	(195		)	(187		)	(622		)	(607		)
Earnings allocated to common stock	$	41,059		$	33,413		$	132,001		$	110,717

Weighted average number of common shares:
Common stock	57,935,118			57,719,730			57,820,596			57,841,382
Effect of dilutive securities	1,197,571			1,204,693			1,121,016			1,203,179
	59,132,689			58,924,423			58,941,612			59,044,561
Earnings per common share:
Common stock	$	0.69		$	0.57		$	2.24		$	1.88



	Nine months ended September 30, 2019
Balance at January 1, 2019	$	1,930
Issuance of contingent consideration in connection with acquisitions	16,621
Settlements of contingent consideration liabilities	(650		)
Changes in fair value	540
Foreign currency translation	(1,067		)
Balance at September 30, 2019	$	17,374



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (In thousands) (1)
July 1, 2019 to July 31, 2019	—	$	—	—	$	258,364
August 1, 2019 to August 31, 2019 ⁽¹⁾	25,401	$	158.56	25,401	$	254,336
September 1, 2019 to September 30, 2019 ⁽¹⁾	50,100	$	154.82	50,100	$	246,580
	75,501			75,501